<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 26, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ENTERPRISE SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7371 36-3130103
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
1400 SOUTH WOLF ROAD
WHEELING, ILLINOIS 60090-6524
(847) 537-4800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
GLEN E. TULLMAN
1400 SOUTH WOLF ROAD
WHEELING, ILLINOIS 60090-6524
(847) 537-4800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
WILLIAM N. WEAVER, JR., ESQ. J. VAUGHAN CURTIS, ESQ.
JEFFREY A. SCHUMACHER, ESQ. NILS H. OKESON, ESQ.
SACHNOFF & WEAVER, LTD. ALSTON & BIRD
30 S. WACKER DRIVE, 29TH FLOOR ONE ATLANTIC CENTER, 1201 WEST
CHICAGO, ILLINOIS 60606-7484 PEACHTREE STREET
TELEPHONE NO. (312) 207-1000 ATLANTA, GEORGIA 30309-3424
TELEPHONE NO. (404) 881-7000
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after the effective date of this
Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, $.01 par value..... 1,983,750 $22.50 $44,634,375 $15,391.16
</TABLE>
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(1) Includes 825,000 shares owned by Selling Stockholders and 258,750 shares
that the Underwriters have the option to purchase to cover over-
allotments, if any.
(2) Estimated pursuant to Rule 457 solely for purposes of computing the
registration fee.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED JULY 26, 1996
ENTERPRISE SYSTEMS, INC.
LOGO
1,725,000 SHARES
COMMON STOCK
Of the 1,725,000 shares of Common Stock offered hereby, 900,000 shares are
being offered by Enterprise Systems, Inc. ("Enterprise" or the "Company") and
825,000 shares are being offered by certain stockholders of the Company (the
"Selling Stockholders"). The Company will not receive any of the proceeds from
the sale of shares by the Selling Stockholders. See "Principal and Selling
Stockholders." On July 24, 1996, the last sale price of the Common Stock as
reported on the Nasdaq National Market was $22.00 per share. See "Price Range
of Common Stock." The Common Stock is traded on the Nasdaq National Market
under the symbol "ESIX."
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGE 6.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
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Total(2)......................... $ $ $ $
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</TABLE>
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(1) Before deducting expenses, payable by the Company, estimated at $300,000.
(2) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 258,750 shares of Common Stock solely to cover over-
allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ ,
respectively.
----------
The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens
& Company"), San Francisco, California, on or about , 1996.
ROBERTSON, STEPHENS & COMPANY
SMITH BARNEY INC.
WESSELS, ARNOLD & HENDERSON
THE DATE OF THIS PROSPECTUS IS , 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company, any Selling Stockholder or any Underwriter. This
Prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy, any securities other than the registered securities to which it
relates, or an offer to, or a solicitation of, any person in any jurisdiction
where such an offer or solicitation would be unlawful. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of the
Company since the date hereof or that the information contained herein is
correct as of any time subsequent to the date hereof.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Summary................................................................... 3
Risk Factors.............................................................. 6
Recent Developments....................................................... 12
Use of Proceeds........................................................... 13
Price Range of Common Stock............................................... 13
Dividend Policy........................................................... 13
Capitalization............................................................ 14
Consolidated Pro Forma Financial Information.............................. 15
Selected Financial Data................................................... 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 18
Business.................................................................. 23
Management................................................................ 30
Certain Transactions...................................................... 38
Principal and Selling Stockholders........................................ 39
Description of Capital Stock.............................................. 41
Shares Eligible for Future Sale........................................... 44
Underwriting.............................................................. 45
Legal Matters............................................................. 46
Experts................................................................... 46
Additional Information.................................................... 46
Index to Financial Statements............................................. F-1
</TABLE>
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TITAN(R), Enterprise Scheduling(R), Enterprise Systems(R), Matkon(R) and
MATKON2000(R), are registered trademarks and NOVA(TM), Nova.IDN(TM),
ORBIT(TM), Titan.IDN(TM), ORION(TM), TS2000(TM), TouchScan(TM) and Corporate
Communications System(TM) are trademarks of the Company. Windows(R) is a
registered trademark of Microsoft Corporation. HL7(R) is a registered
trademark of the American National Standards Institute. ESP(TM) and
Environment for Scheduling Personnel(TM) are trademarks of Total Care
Technologies, Inc. All other trademarks and trade names referred to in this
Prospectus are the property of their respective owners.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS OR THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS
IN THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE
WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
SUMMARY
This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company
including statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Backlog."
Prospective investors are cautioned that such statements, which may be
identified by words including "anticipate," "believe," "intend," "estimates,"
"expect" and similar expressions, are only predictions and that actual events
or results may differ materially. In evaluating such statements, prospective
investors should specifically consider the various factors identified in this
Prospectus, including the matters set forth under the caption "Risk Factors,"
which could cause actual results to differ materially from those indicated by
such forward-looking statements. The following summary is qualified in its
entirety by, and should be read in conjunction with, the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus, including the information under "Risk Factors" on page 6.
THE COMPANY
Enterprise is a healthcare information services company that develops,
markets, installs and services an integrated suite of application software
products that assist healthcare providers in managing their operations. These
resource management systems focus on cost containment and address a broad range
of non-clinical management needs, including materials management, operating
room logistics, patient and staff scheduling and financial management. The
Company's information systems operate on personal computer networks and make
extensive use of electronic data interchange, enabling its customers to
redesign their resource management functions to enhance efficiency and
productivity.
In recent years, governmental and market-driven reform initiatives have
produced significant pressures on healthcare providers to control costs. In
order to manage the economic risk of healthcare delivery, providers are being
forced to change the way they operate and are increasingly focused on measuring
and controlling the cost of delivering care. To date, there has been a lack of
emphasis on integrated information systems that effectively manage operational
costs, which the Company believes constitute a majority of providers' overall
costs. Without the necessary information, it has been difficult for healthcare
managers to allocate efficiently their resources--people, supplies, facilities,
equipment and services--or to understand their costs.
Enterprise has developed information systems that address the operational
aspects of healthcare delivery. The Company offers an integrated suite of
resource management systems that enable healthcare providers to (i) improve
productivity through the redesign and automation of operational processes and
(ii) obtain the information necessary to measure and control costs. The
Company's current product offerings address materials management, operating
room logistics, organization-wide patient and staff scheduling and financial
management, areas which the Company believes offer significant opportunities
for productivity improvement and cost savings. The Company's products are
modular in design, share a common database, and may be used independently or
bundled together in order to provide an integrated resource management system
solution.
The Company's business strategy is to strengthen its existing product lines
and to expand into additional resource management areas. The Company believes a
significant opportunity exists to penetrate further the market of approximately
2,900 large acute care hospitals and 3,100 small hospitals in the United States
and Canada. Most of the Company's existing customers do not currently use the
Company's entire product line. The Company believes that its high customer
retention rate provides an opportunity to sell additional components of its
product suite to its existing customers, which include approximately 1,000
acute care hospitals, of which approximately 270 were added as customers when
the Company acquired the Matkon materials management division of Continental
Healthcare Systems, Inc. in May 1996 (the "Matkon
3
<PAGE>
Acquisition"). Of those customers (other than customers of the Matkon division)
which have purchased the Company's current products since January 1, 1991, more
than 98% remained customers at July 1, 1996. The Company also intends to expand
its limited presence in alternate site markets, including outpatient clinics,
ambulatory surgery centers and specialty laboratories. In addition, the Company
has entered into joint marketing agreements with group purchasing organizations
and hospital management organizations and intends to pursue similar agreements
with certain healthcare information system resellers and medical product
suppliers. These agreements typically provide for the Company's products to be
recommended on a preferred or exclusive basis.
The Company was organized under the laws of the State of Illinois in 1981 and
was reincorporated in the State of Delaware in October 1995. The Company's
principal executive offices are located at 1400 South Wolf Road, Wheeling,
Illinois 60090-6524. The Company's telephone number is (847) 537-4800.
RECENT DEVELOPMENTS
On January 2, 1996, the Company entered into a distribution agreement with
Total Care Technologies, Inc. to distribute a staff scheduling software product
known as ESP for Windows. The agreement provides the Company with exclusive
territorial rights in the United States healthcare market for an initial term
of 26 months with the option to renew thereafter. On March 22, 1996, the
Company entered into a license agreement with FlexiInternational Software, Inc.
that allows the Company to incorporate the FLEXI general ledger and accounts
payable applications into the Company's products for distribution in the United
States healthcare market. On May 28, 1996, the Company completed the Matkon
Acquisition for a cash purchase price of approximately $13.9 million. The
Matkon division develops, markets, installs and services a line of hospital
materials management software products which primarily run on a UNIX platform.
The Company recorded charges of $8,453,000 in the quarter ended June 30, 1996
for acquired in-process technology in connection with the Matkon Acquisition.
See "Recent Developments."
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company.... 900,000 shares
Common Stock Offered by the Selling 825,000 shares
Stockholders..........................
Common Stock Outstanding after the 8,528,206 shares(1)
Offering..............................
Use of Proceeds........................ For working capital and other general
corporate purposes, including potential
acquisitions. See "Use of Proceeds."
Nasdaq National Market Symbol.......... ESIX
</TABLE>
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- -------------------------
PRO PRO
FORMA FORMA
1993 1994 1995 1995(2) 1995 1996 1996(2)
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<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues............... $20,427 $24,712 $33,248 $40,337 $14,440 $21,043 $24,413
Software development
expenses.............. 4,237 6,377 7,536 8,973 3,376 4,043 4,783
Sales and marketing
expenses.............. 4,455 5,984 8,832 10,078 4,249 5,507 6,224
Acquired in-process
technology............ -- -- -- -- (3) -- 8,453 8,453
Total operating costs
and expenses.......... 19,141 24,550 31,783 39,265 14,858 28,433 32,161
Income (loss) from
operations............ 1,286 162 1,465 1,072 (418) (7,390) (7,748)
Net income (loss)...... 749 28 800 478 (360) (4,277) (4,664)
Net income (loss) per
common share.......... $ 0.15 $ 0.01 $ 0.13 $ 0.08 $ (0.07) $ (0.57) $ (0.63)
Shares used in
calculation of per
share data(4)......... 4,886 5,383 6,279 6,279 5,525 7,459 7,459
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------
ACTUAL AS ADJUSTED(5)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 2,601 $21,564
Working capital......................................... 20,427 39,390
Total assets............................................ 45,553 64,516
Total stockholders' equity.............................. 36,984 55,947
</TABLE>
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(1) Based on the number of shares outstanding as of July 1, 1996. Includes
108,625 shares currently subject to stock options to be exercised by
Selling Stockholders in connection with this offering. Excludes 720,790
shares of Common Stock issuable upon the exercise of additional stock
options outstanding as of July 1, 1996, at a weighted average exercise
price of $10.87 per share, and 103,549 shares of Common Stock reserved for
grant of future options or direct issuances under the Company's Long-Term
Incentive Compensation Plan. See "Management--Compensation Pursuant to
Plans."
(2) Gives effect to the Matkon Acquisition as if it had occurred as of January
1, 1995. See "Consolidated Pro Forma Financial Information."
(3) Does not reflect recorded charges of $8,453,000 in the quarter ended June
30, 1996 for acquired in-process technology in connection with the Matkon
Acquisition. See "Recent Developments."
(4) Computed on the basis described in Note 2 of Notes to Consolidated
Financial Statements.
(5) Adjusted to reflect the application of the estimated net proceeds from the
sale of 900,000 shares of Common Stock offered by the Company hereby at an
assumed public offering price of $22.00 per share and the exercise by
Selling Stockholders of options to purchase 108,625 shares of Common Stock
in connection with this offering. See "Use of Proceeds" and
"Capitalization."
Unless otherwise indicated, (i) all information contained in this Prospectus
assumes the Underwriters' over-allotment option is not exercised and (ii) all
references to the "Company" or "Enterprise" refer to Enterprise Systems, Inc.
and its wholly owned subsidiary. See "Description of Capital Stock--
Recapitalization."
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of Common Stock offered hereby. This
Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the following risk factors and elsewhere
in this Prospectus.
ABILITY TO DEVELOP NEW SOFTWARE PRODUCTS; RAPID TECHNOLOGICAL CHANGE
The healthcare information systems market is characterized by rapid
technological change, changing customer needs, frequent new software product
introductions and evolving industry standards. Historically, the Company has
derived substantially all of its revenue from three products: NOVA (materials
management), ORBIT (operating room logistics) and TITAN (accounts payable
management). The Company believes that as the market for these products
matures, its future success will depend upon its ability to enhance current
products and to develop and introduce new software products that keep pace
with technological developments and emerging industry standards and that
address the increasingly sophisticated needs of its customers. In addition,
the introduction of competing products embodying new technologies and the
emergence of new industry standards could render the Company's existing
products obsolete and unmarketable. Accordingly, the Company anticipates that
significant amounts of future revenue will be derived from products and
product enhancements which either do not exist today or have not been sold in
large enough quantities to ensure market acceptance. There can be no assurance
that the Company will not experience difficulties that could delay or prevent
the successful development and introduction of product enhancements or new
products, or that such enhancements or new products will adequately meet the
requirements of the marketplace or achieve market acceptance. If the Company
is unable to develop and introduce product enhancements and new products in a
timely and cost-effective manner in response to changing market conditions or
customer requirements, the Company's business, operating results and financial
condition will be materially and adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
PRODUCT CONVERSIONS TO WINDOWS
Currently, the Company is converting its remaining DOS-based products, which
include NOVA, ORBIT and TITAN, to a Windows platform. As a result of the
complexities involved in such a conversion, the new Windows versions will
require significant development and testing periods before they achieve
marketability. There can be no assurance that the Windows versions will be
completed before demand for the DOS versions slows or before the Company's
competitors are able to develop functionally equivalent products on a Windows
platform. Further, certain potential customers may delay purchasing decisions
until Windows versions of the Company's products are available. There can be
no assurance that the Company will not experience difficulties that could
delay or prevent the successful and timely development, introduction and
marketing of the new Windows versions of its products, or that such versions
will adequately meet the requirements of the marketplace and achieve market
acceptance. In addition, the conversions will divert resources away from
developing or enhancing other products. The occurrence of any of these
potential product conversion problems could have a material adverse effect on
the Company's business, operating results and financial condition. See
"Business--Products."
NEW PRODUCT ACCEPTANCE
The Company may find that the market does not fully accept certain of its
products in their current forms and may be slow to adopt new information
systems technology. For example, the Company's TouchScan point-of-use resource
management product requires a healthcare organization to re-engineer its
operations in order to realize the full economic benefit from the product. As
a result, the volume of sales of the TouchScan product has been substantially
lower than the Company originally forecasted. If TouchScan does not achieve a
greater degree of market acceptance, the Company's growth in future revenues
may be materially and adversely affected.
6
<PAGE>
ACQUISITIONS
The Company's growth strategy may be implemented, in part, through
acquisitions of products, technologies and businesses. The success of any such
acquisition will depend on many factors, including the Company's ability to
identify suitable acquisition candidates, the purchase price, the availability
and terms of financing, and management's ability to integrate effectively the
acquired products, technologies or businesses into the Company's operations.
Significant competition for acquisition opportunities exists in the industry,
which may significantly increase the costs of potential acquisitions. Further,
acquisitions may involve a number of special risks, including, failure to
retain key acquired personnel, unanticipated events or circumstances, legal
liabilities and amortization of acquired intangible assets, some or all of
which could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, the Company competes
for acquisition opportunities with other companies that have significantly
greater financial and management resources and experience in acquiring
products, technologies and businesses. There can be no assurance that the
Company will be able to finance or integrate successfully any acquired
products, technologies or businesses, and their identification, acquisition
and integration may cause a diversion of management time and resources. The
Company cannot assure that a given acquisition may not materially and
adversely affect the Company's business, operating results and financial
condition.
The Company recorded charges of $8,453,000 for acquired in-process
technology in connection with the Matkon Acquisition, which reduced the
Company's operating and net income for the six months ended June 30, 1996. The
Company may incur similar charges in connection with future acquisitions. See
"Recent Developments" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
VARIABLE QUARTERLY OPERATING RESULTS; SEASONALITY
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. Furthermore, the Company has experienced a seasonal
pattern in its operating results, with a greater proportion of the Company's
revenue and operating profitability occurring in the second half of the year.
Accordingly, results of operations for any particular quarter may not be
indicative of results of operations for future periods. Quarterly revenues and
operating results may fluctuate as a result of a variety of factors including:
the Company's sales cycle; demand for the Company's products; the size and
timing of significant orders; competitive conditions in the industry; the
ability of the Company to develop, introduce and market new products and new
releases on a timely basis; deferrals of customer orders in anticipation of
new products or new releases; delay or deferral of customer implementations of
the Company's products; changes in customer budgets; and general economic
factors. A significant portion of the Company's expenses are relatively fixed,
and the amount and timing of increases in such expenses are based in large
part on the Company's expectations for future revenues. If revenues are below
expectations in any given quarter, the adverse effect may be magnified by the
Company's inability to adjust spending quickly enough to compensate for the
revenue shortfall. Accordingly, even a small variation from expected revenues
could have a material adverse effect on the Company's results of operations
for a given quarter. The Company plans to increase expenditures in order to
fund a larger direct sales and marketing staff, greater levels of research and
development, and development of new distribution and resale channels. To the
extent such expenses precede or are not subsequently followed by increased
revenues, the Company's operating results would be materially and adversely
affected.
The timing and amount of the Company's revenues are subject to a number of
factors that make estimation of operating results prior to the end of a
quarter extremely uncertain. In addition, certain large contracts may, in the
future, constitute a substantial portion of the operating profits for a
quarter. Contract signing may be delayed for a number of reasons outside of
the control of the Company, including customers' budgetary constraints and
internal authorization reviews. In addition, the Company's ability to complete
installation of its systems and recognize revenues is dependent on certain
factors outside the control of the Company, including the customer's ability
to allocate its internal resources to the installation process.
7
<PAGE>
Consequently, the Company's business or operating results for a particular
quarter could be materially and adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
COMPETITION
The market for healthcare information systems is intensely competitive. The
competitive factors affecting the market for the Company's software and
services include: vendor and product reputation, availability of products on
preferred computer and communications platforms, scalability, integration with
other applications, functionality and features, ease of use, quality of
support, documentation and training, product quality, product innovation,
price and the effectiveness of marketing and sales efforts. The relative
importance of each of these factors depends upon the market segment. Certain
of the Company's competitors have significantly greater financial, technical,
research and development and marketing resources. As a result, they may be
able to respond more quickly to new or emerging technologies and changes in
customer requirements, or to devote greater resources to the development,
promotion, sale and support of their products than the Company. In addition,
consolidation in the healthcare information systems industry may permit the
Company's competitors to have access to increased financial and administrative
resources and greater technological capabilities and to realize other
operational efficiencies and competitive advantages. Moreover, some purchasers
may prefer to buy computer systems from a single source provider. Because the
Company focuses exclusively on healthcare resource management systems (as
opposed to clinical or billing systems), it cannot serve as the sole source of
computer software for healthcare organizations. The Company cannot assure that
it will be able to continue to compete effectively in this environment, that
competition will not intensify or that future competition will not have a
material adverse effect on the Company's business, operating results or
financial condition. See "Business--Competition."
UNCERTAINTY AND CONSOLIDATION IN HEALTHCARE INDUSTRY
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operation
of healthcare providers. Many federal and state legislators have announced
that they intend to propose programs to reform the United States healthcare
system at both the federal and state level. These programs may contain
proposals to increase governmental involvement in healthcare, lower
reimbursement rates and otherwise change the environment in which providers
operate. Healthcare providers may react to these proposals and the uncertainty
surrounding such proposals by curtailing or deferring investments, including
investments in the Company's products and services.
In response to this environment, many healthcare providers are consolidating
to create larger healthcare delivery organizations. This consolidation reduces
the number of potential customers for the Company's products, and the
increased bargaining power of these organizations could lead to reductions in
the amounts paid for the Company's products. Further, because the Company's
product offerings have expanded into a more extensive package of integrated
products, purchases of the Company's products increasingly require approval by
a customer's executive officers as opposed to departmental managers by whom
the Company is better known. The impact of these developments in the
healthcare industry is difficult to predict and could have a material adverse
effect on the Company's business, operating results and financial condition.
See "Business--Government Regulation."
INABILITY TO EXPAND INTO NEW MARKETS
To date, the Company's products have been purchased primarily by acute care
hospitals. However, healthcare services are increasingly being provided at
sites other than hospitals, such as outpatient clinics, ambulatory surgery
centers and specialty laboratories. The Company intends to increase its
limited presence in these alternate site markets. Because the Company has
limited experience in non-hospital markets, it may find that significant
modifications to its products are necessary before they become useful to a
customer or that pricing may have to be adjusted downward. The Company's
business, operating results and financial condition may be materially and
adversely affected if such alternate site markets are not receptive to the
Company's products.
8
<PAGE>
DEPENDENCE ON PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT
The Company depends significantly upon proprietary technology. The Company
relies on a combination of copyright, trade secret and trademark laws,
confidentiality procedures and contractual provisions to protect its
proprietary rights. The Company seeks to protect its software, documentation
and other written materials under trade secret and copyright laws, which
afford only limited protection. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's products or to obtain and use information that the Company regards
as proprietary. Policing unauthorized use of the Company's products is
difficult, and although the Company is unable to determine the extent to which
piracy of its software products exists, software piracy is a potential
problem. In addition, the laws of some foreign countries in which the Company
sells or may in the future sell its products do not protect the Company's
proprietary rights to as great an extent as do the laws of the United States.
The Company cannot assure that its protective measures for proprietary rights
will be adequate or that the Company's competitors will not independently
develop similar or superior technology, duplicate the Company's products or
circumvent its intellectual property rights.
Substantial litigation regarding intellectual property rights exists in the
software industry, and the Company expects that software products may be
increasingly subject to third-party infringement claims as the number of
products and competitors in the Company's industry segment grows and the
functionality of products overlaps. Although the Company has never received a
claim that it is infringing third parties' intellectual property rights, there
can be no assurance that third parties will not in the future claim
infringement by the Company with respect to current or future products,
trademarks or other proprietary rights. Any such claims, regardless of their
merit, could be time consuming, result in costly litigation, delay or prevent
product shipments or require the Company to enter into costly royalty or
licensing agreements. Such royalty or licensing agreements, if required, may
not be available on terms acceptable to the Company or at all, which could
have a material adverse effect on the Company's business, operating results
and financial condition. See "Business--Proprietary Rights."
PRODUCT LIABILITY
The software products offered by the Company may contain undetected errors
or failures when first introduced or as new versions are released. Errors or
failures that are not detected until after the commencement of commercial
shipments of a product could result in loss of or delay in market acceptance
of the product and in claims against the Company. Any of these factors could
have a material adverse effect on the Company's business, operating results
and financial condition. See "Business--Strategy," "--Products" and "--Product
Development and Technology."
DEPENDENCE ON KEY PERSONNEL
The Company depends to a significant extent on certain key personnel. In
addition, the Company believes that its growth and success will depend on its
ability to attract and retain qualified management, technical, sales and
marketing personnel. Competition for such personnel is intense. The loss of
the services of one or more of the Company's key employees or the Company's
inability to attract and retain qualified personnel could have a material
adverse effect on the Company's business, operating results and financial
condition. While the Company does have employment contracts with all members
of its executive management team, and with certain key product development and
product engineering employees, these contracts do not guarantee that these
individuals will continue their employment with the Company. The Company
maintains "key man" life insurance of $1,000,000 on the life of Glen E.
Tullman, Chief Executive Officer.
CONTROL BY OFFICERS AND DIRECTORS
Upon completion of this offering, Thomas R. Pirelli, a Director and a
founder of the Company, will beneficially own an aggregate of 1,278,629 shares
of Common Stock, representing approximately 15% of the
9
<PAGE>
outstanding Common Stock. The Company's other Directors, executive officers
and principal stockholders, including its 401(k) Plan, and their affiliates
will beneficially own approximately 18% of the outstanding Common Stock upon
completion of this offering. Consequently, these stockholders, acting
together, will be able to control all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. Such concentration of ownership may have the effect of delaying
or preventing a change in control of the Company. See "Principal and Selling
Stockholders" and "Description of Capital Stock--Antitakeover Effects of
Provisions of the Certificate of Incorporation, By-Laws and Delaware Law."
UNALLOCATED PROCEEDS OF OFFERING
None of the anticipated net proceeds of this offering have been designated
for specific uses. Therefore, the Board of Directors of the Company will have
broad discretion with respect to the use of the net proceeds of this offering.
See "Use of Proceeds."
POSSIBLE VOLATILITY OF STOCK PRICE
Since the Company's initial public offering in October 1995, the market
price for the Common Stock has fluctuated substantially. The market price of
the Common Stock may continue to experience significant fluctuations in
response to quarter-to-quarter variations in the Company's operating results,
announcements of technological innovations or new products by the Company or
its competitors, governmental regulatory actions, general trends in the
industry and other events. In addition, the stock market in recent years has
experienced extreme price and volume fluctuations that have particularly
affected the market prices of many technology companies and that have often
been unrelated or disproportionate to the operational performance of these
companies. These fluctuations, as well as general economic and market
conditions, may materially and adversely affect the market price of the Common
Stock. See "Price Range of Common Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
following this offering could adversely affect the market price for the Common
Stock. Upon completion of this offering, the Company will have 8,528,206
shares of Common Stock outstanding (or 8,786,956 shares if the Underwriters'
over-allotment option is exercised in full), assuming no exercise of options
after July 1, 1996. Substantially all of these shares will be freely tradeable
without restriction under the Securities Act of 1933, as amended (the
"Securities Act"), or may currently be sold in accordance with Rule 144 under
the Securities Act ("Rule 144"). In addition, the Company has registered on a
registration statement on Form S-8 a total of 1,114,846 shares of Common Stock
reserved for issuance under the Company's Long-Term Incentive Compensation
Plan, of which options for 290,507 shares have been exercised as of July 1,
1996 or will be exercised by Selling Stockholders in connection with this
offering. The remaining 824,339 shares, when and if issued, would be freely
tradeable (unless acquired by an affiliate of the Company, in which case they
would be subject to volume and other limitations under Rule 144). The
Directors, executive officers and the Selling Stockholders beneficially
holding an aggregate of 2,820,884 shares of Common Stock as of July 1, 1996
(excluding shares offered hereby), have entered into lock-up agreements with
the Underwriters pursuant to which such stockholders have agreed not to sell
or otherwise dispose of any shares of Common Stock for a period of 90 days
after the date of this Prospectus without the prior written consent to
Robertson, Stephens & Company. However, Robertson, Stephens & Company may, in
its sole discretion and at any time without notice, release all or any portion
of the securities subject to lock-up agreements. Upon expiration or early
termination of the lock-up period, these shares will be eligible for immediate
sale, subject in certain cases to volume and other limitations under Rule 144.
See "Shares Eligible for Future Sale" and "Underwriting."
EFFECT OF CERTAIN CHARTER PROVISIONS; ANTITAKEOVER EFFECTS OF CERTIFICATE OF
INCORPORATION, BY-LAWS AND DELAWARE LAW
The Company's Board of Directors has the authority to issue shares of
preferred stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further
vote
10
<PAGE>
or action by the stockholders. The rights of the holders of Common Stock will
be subject to, and may be adversely affected by, the rights of the holders of
any preferred stock that may be issued in the future. The issuance of preferred
stock could have the effect of delaying, deferring or preventing a change in
control of the Company. In addition, certain provisions of the Company's
Certificate of Incorporation and By-Laws and of Delaware law could have the
effect of delaying, deterring or preventing a change in control of the Company.
See "Description of Capital Stock--Preferred Stock" and "--Antitakeover Effects
of Provisions of the Certificate of Incorporation, By-Laws and Delaware Law."
HOLDING COMPANY STRUCTURE
The Company derives substantially all of its operating income and cash flows
from its subsidiary. The Company relies on dividends and other distributions
from its subsidiary to generate the funds necessary to meet its obligations.
The ability of the Company's subsidiary to make such distributions is subject
to, among other things, applicable state laws and the terms of the subsidiary's
credit facility. Claims of creditors of the Company's subsidiary, including
trade creditors, will generally have priority as to the assets of such
subsidiary over the claims of the Company. See "Description of Capital Stock--
Recapitalization."
11
<PAGE>
RECENT DEVELOPMENTS
On January 2, 1996, the Company entered into a distribution agreement with
Total Care Technologies, Inc. ("TCT") to distribute a staff scheduling
software product known as ESP for Windows ("ESP"). The agreement provides the
Company with exclusive territorial rights in the United States healthcare
market for an initial term of 26 months with the option to renew thereafter.
ESP is a Windows-based client/server product that assists users in managing
the complex staffing issues for numerous clinical and operational areas,
including nursing, dietary/food service, housekeeping, clinical technician
services, surgical services and physical and occupational therapy. The
Company's minimum royalty commitment to TCT over the initial 26-month term of
the agreement is approximately $1.5 million. To date, the Company has licensed
eight copies of TCT's staff scheduling software.
On March 22, 1996, the Company entered into a license agreement with
FlexiInternational Software, Inc. ("FLEXI") that allows the Company to
incorporate the FLEXI general ledger and accounts payable applications into
the Company's products for distribution in the United States healthcare
market. The Company has an exclusive right to sell the FLEXI applications in
the United States upon meeting certain sales levels. FLEXI products are
Windows-based client/server products that operate in both the Windows NT and
UNIX environments. The Company's minimum royalty commitment to FLEXI over the
initial four year term of the agreement is approximately $2.0 million.
On May 28, 1996, the Company completed the Matkon Aquisition for a cash
purchase price of approximately $13.9 million. The Matkon division develops,
markets, installs and services a line of hospital materials management
software products which primarily run on a UNIX platform. The Matkon division
has an installed base of approximately 270 acute care hospitals. The Company
recorded charges of $8,453,000 in the quarter ended June 30, 1996 for acquired
in-process technology in connection with the Matkon Acquisition. See
"Consolidated Pro Forma Financial Information" and "Selected Financial Data."
12
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 900,000 shares of Common Stock offered
hereby by the Company are estimated to be approximately $18,411,000
($23,744,000 if the Underwriters' over-allotment option is exercised in full),
assuming a public offering price of $22.00 per share and after deducting
estimated underwriting discounts and commissions and estimated offering
expenses. The Company expects to use the net proceeds of this offering for
general corporate purposes. A portion of the net proceeds may also be used for
the acquisition of businesses, products and technologies. However, the Company
has no agreements or commitments with respect to any such transaction. Pending
such uses, the net proceeds of this offering will be invested in short-term,
investment-grade, interest-bearing securities. The Company will not receive
any proceeds from the sale of Common Stock by the Selling Stockholders. See
"Principal and Selling Stockholders."
PRICE RANGE OF COMMON STOCK
The Common Stock began trading publicly on the Nasdaq National Market on
October 20, 1995 under the symbol "ESIX". The following table sets forth, for
the periods indicated, the range of high and low closing sales prices for the
Common Stock as reported by Nasdaq:
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ------- -------
<S> <C> <C>
December 31, 1995 (from October 20, 1995)........... $37 3/4 $17 3/4
March 31, 1996...................................... $30 1/2 $23
June 30, 1996....................................... $39 5/8 $27 1/4
</TABLE>
On July 24, 1996, the closing sales price of the Common Stock as reported on
the Nasdaq National Market was $22 per share. On July 1, 1996, there were
approximately 81 registered holders of the Common Stock.
DIVIDEND POLICY
The Company has never paid any cash dividends on its capital stock. The
Company currently anticipates that all of its earnings will be retained for
development of the Company's business, and does not anticipate paying any cash
dividends (other than intercompany dividends) in the foreseeable future.
Future cash dividends, if any, will be at the discretion of the Company's
Board of Directors and will depend upon, among other things, the Company's
future operations and earnings, capital requirements and surplus, general
financial condition, contractual restrictions and such other factors as the
Board of Directors may deem relevant.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
June 30, 1996 and (ii) as adjusted to reflect the receipt and application of
the net proceeds from the sale of 900,000 shares of Common Stock offered by
the Company hereby at an assumed public offering price of $22.00 per share and
the exercise by Selling Stockholders of options to purchase 108,625 shares of
Common Stock in connection with this offering. The following table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------
AS
ACTUAL ADJUSTED
------- --------
(in thousands)
<S> <C> <C>
Long-term debt............................................... $ -- $ --
Stockholders' equity:
Preferred Stock, $.01 par value; 1,000,000 authorized
shares; no shares issued and outstanding.................. -- --
Common Stock, $.01 par value; 30,000,000 authorized shares;
7,519,581 shares issued and outstanding; 8,528,206 issued
and outstanding as adjusted(1)............................ 75 85
Additional paid-in capital................................. 39,352 58,305
Retained earnings (accumulated deficit)(2)................. (2,367) (2,367)
Deferred compensation...................................... (76) (76)
------- -------
Total stockholders' equity............................... 36,984 55,947
------- -------
Total capitalization................................... $36,984 $55,947
======= =======
</TABLE>
- --------
(1) Includes 108,625 shares subject to stock options to be exercised by
Selling Stockholders in connection with this offering. Excludes 720,790
shares of Common Stock issuable upon the exercise of additional stock
options outstanding as of July 1, 1996, at a weighted average exercise
price of $10.87 per share, and 103,549 shares of Common Stock reserved for
grant of future options or direct issuances under the Company's Long-Term
Incentive Compensation Plan. See "Management--Compensation Pursuant to
Plans."
(2) Includes charges of $8,453,000 for acquired in-process technology in
connection with the Matkon Acquisition.
14
<PAGE>
CONSOLIDATED PRO FORMA FINANCIAL INFORMATION
The accompanying consolidated pro forma financial information gives effect
to the Matkon Acquisition. The consolidated pro forma statement of operations
for the fiscal year ended December 31, 1995 combines the audited consolidated
statement of operations of the Company for the fiscal year ended December 31,
1995 with the audited statement of revenues and expenses of the Matkon
division for the twelve-month period ended November 30, 1995 as if the Matkon
Acquisition had occurred at January 1, 1995. The pro forma statement of
operations for the six-month period ended June 30, 1996 combines the unaudited
consolidated pro forma statement of operations of the Company for the six-
month period ended June 30, 1996 with the unaudited statement of revenues and
expenses of the Matkon division for the six-month period ended May 31, 1996 as
if the Matkon Acquisition had occurred at January 1, 1995. The transaction has
been accounted for as a purchase and appropriate adjustments have been made to
the consolidated pro forma statements of operations to reflect the transaction
at the beginning of the respective periods combined. The consolidated pro
forma financial information presented below is not necessarily indicative of
the operating results which would have been achieved had the Matkon
Acquisition occurred at the beginning of the periods presented or of results
to be achieved in the future.
CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(unaudited)
<TABLE>
<CAPTION>
COMPANY MATKON PRO FORMA
CONSOLIDATED DIVISION ADJUSTMENTS PRO FORMA
DECEMBER 31, NOVEMBER 30, DEBIT DECEMBER 31,
1995 1995(1) (CREDIT)(2) 1995
------------ ------------ ----------- ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues
Software................. $16,104 $1,497 $17,601
Services................. 16,498 3,810 20,308
Hardware................. 646 1,782 2,428
------- ------ -------
Total revenues......... 33,248 7,089 40,337
Operating costs and
expenses
Software development..... 7,536 937 $ 500 (a) 8,973
Service and support...... 10,742 2,152 12,894
Hardware................. 786 1,885 2,671
Sales and marketing...... 8,832 1,246 10,078
Administration........... 3,887 372 390 (b) 4,649
------- ------ -------
Total operating costs
and
expenses.............. 31,783 6,592 39,265
------- ------ -------
Income from operations..... 1,465 497 1,072
Interest income (expense),
net....................... 17 -- 144 (c) (127)
------- ------ -------
Income before income taxes. 1,482 497 945
Income taxes (benefit)..... 682 -- (215)(d) 467
------- ------ -------
Net income................. $ 800 $ 497 $ 478
======= ====== =======
Net income per share....... $ 0.13 $ 0.08
======= =======
Weighted average shares
outstanding............... 6,279 6,279
======= =======
</TABLE>
- --------
See accompanying footnotes on following page.
15
<PAGE>
CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(unaudited)
<TABLE>
<CAPTION>
COMPANY MATKON PRO FORMA
CONSOLIDATED DIVISION ADJUSTMENTS PRO FORMA
JUNE 30, MAY 31, DEBIT JUNE 30,
1996(3) 1996(1) (CREDIT)(2) 1996
------------ -------- ----------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues
Software.......................... $ 9,860 $ 686 $10,546
Services.......................... 10,454 1,936 12,390
Hardware.......................... 729 748 1,477
------- ------ -------
Total revenues.................. 21,043 3,370 24,413
Operating costs and expenses
Software development.............. 4,043 490 $250(a) 4,783
Service and support............... 6,577 1,077 7,654
Hardware.......................... 739 846 1,585
Sales and marketing............... 5,507 717 6,224
Administration.................... 3,114 153 195(b) 3,462
Acquired in-process technology.... 8,453 -- 8,453
------- ------ -------
Total operating costs and
expenses....................... 28,433 3,283 32,161
Income (loss) from operations...... (7,390) 87 (7,748)
Interest income (expense), net..... 467 -- 289(c) 178
------- ------ -------
Income (loss) before income taxes.. (6,923) 87 (7,570)
Income taxes (benefit)............. (2,646) -- (260)(d) (2,906)
------- ------ -------
Net income (loss).................. $(4,277) $ 87 $(4,664)
======= ====== =======
Net loss per share................. $(0.57) $ (0.63)
======= =======
Weighted average shares
outstanding....................... 7,459 7,459
======= =======
</TABLE>
- --------
(1) On May 28, 1996, the Company completed the Matkon Acquisition for a cash
purchase price of approximately $13.9 million. The Matkon Acquisition has
been reflected as though such transaction occurred on January 1, 1995. The
expected purchase price allocation includes approximately $8.4 million of
acquired in-process technology and $1.7 million of purchased software. The
allocation of purchase price represents an estimate of the fair values of
assets acquired and liabilities assumed including estimated professional
fees and other acquisition expenses expected to be incurred. The
allocation is subject to change and is not necessarily indicative of the
ultimate purchase price allocation. The charge for the acquired in-process
technology of approximately $8.4 million is not reflected in the
Consolidated Pro Forma Statement of Operations for the year ended December
31, 1995. Such amount is a charge to earnings in the period of
acquisition.
(2) The consolidated pro forma financial information is based on the following
assumptions and adjustments:
(a) To conform Matkon's policy of capitalizing certain software development
expenses to the Company's method of software capitalization.
(b) To reflect the amortization of the excess of cost over net assets
acquired and other intangible assets.
(c) To reduce interest income related to cash payments made for the
acquisition.
(d) To reflect the net income tax benefit relating to the adjustments
discussed above using an effective tax rate of 40%.
(3) The Company's consolidated statement of operations for the six months
ended June 30, 1996 includes revenues and net income of $797,000 and
$204,000, respectively, related to the results of the operations of the
Matkon division during the period from May 29, 1996 to June 30, 1996.
16
<PAGE>
SELECTED FINANCIAL DATA
The statements of operations data for the years ended December 31, 1993,
1994 and 1995, and the balance sheet data at December 31, 1994 and 1995 are
derived from the audited consolidated financial statements included elsewhere
in this Prospectus and should be read in conjunction with those financial
statements and notes thereto. The statements of operations data for the years
ended December 31, 1991 and 1992 are derived from unaudited financial
statements not included herein. The statements of operations data for the six-
month periods ended June 30, 1995 and 1996 and the balance sheet data at June
30, 1995 and 1996 are derived from unaudited consolidated financial statements
that include, in the opinion of management, all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
information set forth therein. The selected financial data set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues
Software............... $ 6,669 $ 7,304 $ 9,065 $11,762 $16,104 $ 6,988 $ 9,860
Services............... 7,740 8,567 10,653 12,343 16,498 7,240 10,454
Hardware............... 1,394 1,153 709 607 646 212 729
------- ------- ------- ------- ------- -------- --------
Total revenues....... 15,803 17,024 20,427 24,712 33,248 14,440 21,043
Operating costs and
expenses
Software development... 3,088 3,505 4,237 6,377 7,536 3,376 4,043
Service and support.... 4,907 5,607 7,187 8,629 10,742 5,133 6,577
Hardware............... 1,218 1,112 717 682 786 269 739
Sales and marketing.... 3,537 3,347 4,455 5,984 8,832 4,249 5,507
Administration......... 1,979 2,107 2,545 2,878 3,887 1,831 3,114
Acquired in-process
technology............ -- -- -- -- -- -- 8,453
------- ------- ------- ------- ------- -------- --------
Total operating costs
and expenses........ 14,729 15,678 19,141 24,550 31,783 14,858 28,433
------- ------- ------- ------- ------- -------- --------
Income (loss) from
operations............. 1,074 1,346 1,286 162 1,465 (418) (7,390)
Interest income
(expense), net......... (93) (132) (198) (114) 17 (81) 467
------- ------- ------- ------- ------- -------- --------
Income (loss) before
income taxes........... 981 1,214 1,088 48 1,482 (499) (6,923)
Income taxes (benefit).. 451 455 339 20 682 (139) (2,646)
------- ------- ------- ------- ------- -------- --------
Net income (loss)....... $ 530 $ 759 $ 749 $ 28 $ 800 $ (360) $ (4,277)
======= ======= ======= ======= ======= ======== ========
Net income (loss) per
share.................. $ 0.11 $ 0.16 $ 0.15 $ 0.01 $ 0.13 $ (0.07) $ (0.57)
======= ======= ======= ======= ======= ======== ========
Shares used in computing
net income (loss) per
share(1)............... 4,756 4,711 4,886 5,383 6,279 5,525 7,459
======= ======= ======= ======= ======= ======== ========
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 1,806 $ 1,665 $ 1,901 $ 1,588 $11,403 $ 1,079 $ 2,601
Working capital......... 1,776 3,303 3,046 4,924 30,368 4,279 20,427
Total assets............ 6,849 9,963 12,842 15,752 48,926 15,518 45,553
Long-term debt, less
current portion........ 2,029 1,057 291 -- -- -- --
Total stockholders'
equity................. 1,680 2,769 5,028 8,737 40,406 8,349 36,984
</TABLE>
- --------
(1)Computed on the basis described in Note 2 of Notes to Consolidated
Financial Statements.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements which involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
Prospectus.
OVERVIEW
Enterprise was founded in 1981. The Company develops, markets, installs and
services an integrated suite of application software products that assist
healthcare providers in managing their operations. The Company derives its
revenues from software licenses, installation services, ongoing support,
maintenance and enhancement services, product education, consulting and the
sale of computer hardware. While the Company's customers currently consist
primarily of large acute care hospitals (hospitals with 150 or more beds), it
has increased its efforts to penetrate other healthcare provider markets, in
particular, small hospitals (hospitals with less than 150 beds) and alternate
site facilities such as outpatient clinics, ambulatory surgery centers and
specialty laboratories.
The selling cycle for the Company's software products has generally ranged
from six to twelve months, culminating with the signing of a license agreement.
These agreements provide for up-front fees for each of a system's components,
including the software license, installation services, initial product
education and hardware (if required), as well as annual fees for ongoing
support, maintenance and enhancements. Payment terms for up-front fees
generally provide for remittances upon contract signing, software load, initial
operational use and post-installation review. The agreements typically provide
for a minimum of one year of support, maintenance and enhancement fees,
renewable annually. Generally, fees for support and maintenance are billed
monthly, while enhancement fees are billed annually. The Company also offers
continuing product education and on-site consulting services.
Software revenues consist of software license fees. Services revenues consist
of (i) up-front fees for software installation and initial product education,
(ii) annual fees for ongoing support, maintenance and enhancements and (iii)
fees for continuing product education and consulting services. Revenues from
software licensing and installation services are recognized as the installation
services are performed. Ongoing support, maintenance and enhancement revenue is
recognized ratably over the time periods covered by the service agreements. The
Company recognizes education and consulting revenue as the services are
performed.
18
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth revenue and expense items as a percentage of
total revenues, and the percentage change in dollar amounts of such items from
period to period.
<TABLE>
<CAPTION>
SIX
MONTHS PERCENT
YEAR ENDED ENDED INCREASE/(DECREASE)
DECEMBER 31, JUNE 30, OVER PRIOR PERIOD
---------------- ----------- -------------------------
1993 1994 1995 1995 1996 1994 1995 1996
---- ---- ---- ---- ---- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Software............... 45% 48% 48% 49% 47% 30% 37% 41%
Services............... 52 50 50 50 50 15 34 44
Hardware............... 3 2 2 1 3 (14) 6 244
--- --- --- --- ---
Total revenues......... 100 100 100 100 100 31 35 46
Operating costs and
expenses
Software development... 21 26 23 23 19 50 18 20
Service and support.... 35 35 32 35 31 20 24 28
Hardware............... 3 3 2 2 4 (5) 15 175
Sales and marketing.... 21 24 27 29 26 34 48 30
Administration......... 12 11 12 13 15 13 35 70
Acquired in-process
technology............ -- -- -- -- 40 -- -- *
--- --- --- --- ---
Total operating costs
and expenses.......... 92 99 96 102 135 28 29 91
--- --- --- --- ---
Income (loss) from
operations............. 8 1 4 (2) (35) (87) * *
Interest income
(expense), net......... (1) -- -- (1) 2 * * *
--- --- --- --- ---
Income (loss) before
income taxes........... 7 1 4 (3) (33) (96) * *
Income taxes (benefit).. 2 -- 2 (1) (13) (94) * *
--- --- --- --- ---
Net income (loss)....... 5% 1% 2% (2)% (20)% (96)% * *
=== === === === ===
</TABLE>
- --------
*Not meaningful.
Revenues
The Company derives its revenues from software licenses, installation
services, ongoing support, maintenance and enhancement services, product
education, consulting and the sale of computer hardware. Total revenues for
the first half of 1996 were $21,043,000, an increase of $6,603,000 or 46%, as
compared to $14,440,000 for the same period in 1995. Total revenues from all
sources for 1995 were $33,248,000, an increase of $8,536,000 or 35% from 1994
total revenues of $24,712,000. Total revenues in 1994 increased $4,285,000 or
21% over 1993 revenues of $20,427,000.
Software. Software revenues for the first half of 1996 increased $2,872,000,
or 41%, as compared to the same period of 1995. In 1995, software revenues
were $16,104,000, a 37% increase over 1994. From 1993 to 1994, software
revenues increased 30% from $9,065,000 to $11,762,000. The increases are
primarily attributable to expansion of the Company's sales force and marketing
efforts.
Services. Services revenues for the first half of 1996 increased $3,214,000,
or 44%, as compared to the first half of 1995. Services revenues in 1995
increased 34% over 1994 to $16,498,000, and 1994 services revenues of
$12,343,000 represented an increase of 15% over 1993 services revenues. The
increase in services revenues is related to the increase in software revenues
coupled with an increase in consulting services revenues and growth in
recurring support fees.
Hardware. Hardware revenues for the first half of 1996 increased $517,000 as
compared to the first half of 1995. Hardware revenues in 1995 increased
$39,000 or 6% over 1994 to $646,000. From 1993 to 1994, hardware revenues
declined $102,000. Prior to 1995, hardware revenues had declined over time as
customers had increasingly elected to purchase personal computer equipment
from other sources. The increases in hardware revenues in 1995 and the first
six months of 1996 are principally attributable to sales of TouchScan, which
was introduced in 1995.
19
<PAGE>
Costs and Expenses
Software Development. Software development expenses for the first half of
1996 increased $667,000, or 20%, as compared to the first half of 1995.
Software development expenses increased to $7,536,000 in 1995 from $6,377,000
in 1994 and $4,237,000 in 1993. The increases in these expenses are primarily
related to development work on new releases of each of the Company's product
lines and the ongoing conversion of its DOS-based products to a Windows-based
platform. For the first six months of 1996, software development expenses
decreased as a percentage of total revenues from the year earlier period,
however, because a larger percentage of development effort was related to new
products, rather than enhancement of existing products, more software
development expenditures were capitalized in that period.
The Company capitalized $666,000 and $338,000 of software development costs,
net of related amortization expense, for the six months ended June 30, 1996
and 1995 and $624,000, $538,000 and $335,000 in 1995, 1994 and 1993,
respectively, in accordance with Statement of Financial Accounting Standards
No. 86. Capitalized software development costs are amortized over the
estimated life of the related products (up to four years). Amounts
capitalized, net of amounts amortized, represent 14% and 9% of total software
development expenditures for the six months ended June 30, 1996 and 1995 and
8%, 8% and 7% for 1995, 1994 and 1993, respectively.
Service and Support. Service and support expenses for the first half of 1996
increased $1,444,000, or 28%, as compared to the first half of 1995. Service
and support expenses increased to $10,742,000 in 1995 from $8,629,000 in 1994
and $7,187,000 in 1993. The increases in these expenses are primarily
attributable to the hiring of additional implementation personnel and related
travel. As a percentage of total revenues, service and support expenses
decreased from 35% in 1994 and 1993 to 32% in 1995.
Hardware. Hardware costs for the first half of 1996 increased $470,000, as
compared to the first half of 1995. Hardware costs were $786,000, $682,000 and
$717,000 in 1995, 1994 and 1993, respectively. The fluctuations in hardware
costs are attributable to the proportionate fluctuations in hardware revenues
in each year.
Sales and Marketing. Sales and marketing expenses for the first half of 1996
increased $1,258,000, or 30%, as compared to the first half of 1995. Sales and
marketing expenses increased to $8,832,000 in 1995 from $5,984,000 in 1994 and
$4,455,000 in 1993. The increases in these expenses are primarily attributable
to the expansion of the Company's sales force and related sales support and
marketing activities.
Administration. Administration expenses for the first half of 1996 increased
$1,283,000, or 70%, as compared to the first half of 1995. The increase in
administration expenses is a result of an increase in administrative services
personnel, public company related expenses, amortization of intangible assets
acquired in the Matkon Acquisition and the provision for bad debts, which has
increased with the increase in revenues. Administration expenses increased to
$3,887,000 in 1995 from $2,878,000 in 1994 and $2,545,000 in 1993. The
increases in administration expenses in these periods are primarily a result
of additions to the management team and investments in the Company's
telecommunications and computer infrastructure.
Acquired In-Process Technology. The Company recorded nonrecurring charges of
$8,453,000 in the quarter ended June 30, 1996 for acquired in-process
technology in connection with the Matkon Acquisition. See "Consolidated Pro
Forma Financial Information."
Interest. Prior to its initial public offering in 1995, the Company borrowed
primarily to finance seasonal working capital needs. A portion of the proceeds
from the initial public offering was used to repay all outstanding debt. Net
interest income for the first half of 1996 was $467,000, as compared to net
interest expense of $81,000 in the first half of 1995. The increase in net
interest income in 1996 was primarily attributable to the investment of a
portion of the initial public offering proceeds in interest-bearing
securities.
20
<PAGE>
Income Taxes. For the first half of 1996, the income tax benefit was
$2,646,000, compared to an income tax benefit of $139,000 in the first half of
1995. The Company incurred income tax expense of $682,000 (effective rate of
46%) in 1995, $20,000 (effective rate of 42%) in 1994 and $339,000 (effective
rate of 31%) in 1993. The increase in the effective rate in 1995 is
attributable to the incurrence of a greater proportion of nondeductible
travel-related expenses.
QUARTERLY RESULTS OF OPERATIONS
The Company's quarterly results of operations have been seasonal, with a
greater proportion of the Company's revenue and operating profitability
occurring in the second half of the year. This seasonality is primarily
attributable to (i) hospital budgeting practices that are characterized by a
disproportionately larger amount of spending in the second half of the year
and (ii) the Company's sales force compensation program, which is based
significantly on achieving sales quotas by the end of September.
The following table sets forth certain unaudited quarterly financial data
for each of the ten quarters ending with the quarter ended June 30, 1996. In
the opinion of management, this unaudited data contains all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the results of operations for the periods presented. The operating results for
any quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1994 1994 1994 1994 1995 1995 1995 1995 1996 1996
-------- -------- --------- -------- -------- -------- --------- -------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Software............... $2,373 $2,328 $2,877 $4,184 $3,406 $3,582 $3,835 $ 5,281 $4,284 $ 5,576
Services............... 2,886 2,842 3,105 3,510 3,333 3,907 4,305 4,953 4,922 5,532
Hardware............... 93 124 154 236 71 141 102 332 391 338
------ ------ ------ ------ ------ ------ ------ ------- ------ -------
Total revenues......... 5,352 5,294 6,136 7,930 6,810 7,630 8,242 10,566 9,597 11,446
Operating costs and
expenses
Software development... 1,390 1,401 1,725 1,861 1,558 1,818 2,110 2,050 1,933 2,110
Service and support.... 2,005 2,239 2,225 2,160 2,452 2,681 2,784 2,825 2,782 3,795
Hardware............... 85 145 168 284 76 193 105 412 369 370
Sales and marketing.... 1,283 1,614 1,277 1,810 2,133 2,116 2,150 2,433 2,594 2,913
Administration......... 697 640 667 874 861 970 953 1,103 1,579 1,535
Acquired in-process
technology............ -- -- -- -- -- -- -- -- -- 8,453
------ ------ ------ ------ ------ ------ ------ ------- ------ -------
Total operating costs
and expenses.......... 5,460 6,039 6,062 6,989 7,080 7,778 8,102 8,823 9,257 19,176
------ ------ ------ ------ ------ ------ ------ ------- ------ -------
Income (loss) from
operations............. (108) (745) 74 941 (270) (148) 140 1,743 340 (7,730)
Interest income
(expense), net......... (57) (14) (5) (38) (46) (35) (69) 167 276 191
------ ------ ------ ------ ------ ------ ------ ------- ------ -------
Income (loss) before
income taxes........... (165) (759) 69 903 (316) (183) 71 1,910 616 (7,539)
Income taxes (benefit).. (67) (233) 19 301 (88) (51) 28 793 260 (2,906)
------ ------ ------ ------ ------ ------ ------ ------- ------ -------
Net income (loss)....... $ (98) $ (526) $ 50 $ 602 $ (228) $ (132) $ 43 $ 1,117 $ 356 $(4,633)
====== ====== ====== ====== ====== ====== ====== ======= ====== =======
Net income (loss) per
share.................. $(0.02) $(0.10) $ 0.01 $ 0.11 $(0.04) $(0.02) $ 0.01 $ 0.15 $ 0.04 $ (0.62)
====== ====== ====== ====== ====== ====== ====== ======= ====== =======
Shares used in computing
net income (loss) per
share.................. 4,943 5,240 5,338 5,383 5,524 5,525 5,520 7,420 8,030 7,510
====== ====== ====== ====== ====== ====== ====== ======= ====== =======
</TABLE>
21
<PAGE>
The following table sets forth, as a percentage of revenue, certain
unaudited quarterly financial data:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1994 1994 1994 1994 1995 1995 1995 1995 1996 1996
-------- -------- --------- -------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Software............... 44% 44% 47% 53% 50% 47% 47% 50% 45% 49%
Services............... 54 54 51 44 49 51 52 47 51 48
Hardware............... 2 2 2 3 1 2 1 3 4 3
--- --- --- --- --- --- --- --- --- ---
Total revenues......... 100 100 100 100 100 100 100 100 100 100
Operating costs and
expenses
Software development... 26 26 28 23 23 24 26 19 20 18
Service and support.... 37 42 36 27 36 35 34 27 29 33
Hardware............... 2 3 3 4 1 3 1 4 4 4
Sales and marketing.... 24 31 21 23 31 27 26 23 27 25
Administration......... 13 12 11 11 13 13 11 11 16 13
Acquired in-process
technology............ -- -- -- -- -- -- -- -- -- 75
--- --- --- --- --- --- --- --- --- ---
Total operating costs
and expenses.......... 102 114 99 88 104 102 98 84 96 168
--- --- --- --- --- --- --- --- --- ---
Income (loss) from
operations............. (2)% (14)% 1% 12% (4)% (2)% 2% 16% 4% (68)%
=== === === === === === === === === ===
Net income (loss)....... (2)% (10)% 1% 8% (3)% (2)% 1% 11% 4% (40)%
=== === === === === === === === === ===
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering in 1995, the Company met its capital
needs through a combination of cash flow from operations and proceeds from
issuance of Common Stock in 1993 ($1.1 million) and 1994 ($3.5 million). The
seasonality of the Company's business has historically necessitated the use of
short-term borrowings at various times during the year. The Company currently
has an $18 million unsecured revolving credit line bearing interest at LIBOR
plus 1.25% to 1.75%, which is available to fund short-term liquidity needs and
other general corporate purposes. As of July 22, 1996, the Company had no
outstanding borrowings under the line of credit.
On October 25, 1995, the Company completed an initial public offering of its
Common Stock. The initial public offering resulted in net proceeds to the
Company of approximately $31,282,000. Management believes that the net
proceeds from this offering, together with existing cash and cash equivalents,
cash flow from operations and borrowings under its line of credit, will be
sufficient to meet the Company's currently anticipated working capital and
capital expenditure requirements for at least the next twelve months.
On May 28, 1996, the Company completed the Matkon Acquisition for a cash
purchase price of approximately $13.9 million. The Matkon division develops,
markets, installs and services a line of hospital materials management
software products which primarily run on a UNIX platform. The Matkon
Acquisition resulted in declines in cash and investment securities, and
increases in a number of asset accounts reflecting the acquisition of tangible
and intangible assets. Increases in prepaid and deferred income taxes arise as
a result of the tax benefits from the write-off of acquired in-process
technology. See "Recent Developments."
The Company has no outstanding material purchase commitments. The Company is
obligated to make minimum royalty payments in the aggregate amount of
approximately $3.5 million under certain license agreements, of which
approximately $400,000 has been paid. See "Recent Developments."
The Company does not believe that inflation has had a material impact on its
results of operations.
PENDING ACCOUNTING STANDARD
In accordance with Statement of Financial Accounting Standards No. 123, the
Company will continue to measure compensation cost for stock options using the
intrinsic value based method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock issued to Employees." The disclosure requirements of
Statement No. 123 will be incorporated into the December 31, 1996 financial
statements.
22
<PAGE>
BUSINESS
The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
GENERAL
Enterprise is a healthcare information services company that develops,
markets, installs and services an integrated suite of application software
products that assist healthcare providers in managing their operations. These
resource management systems, which are sold primarily to acute care hospitals,
focus on cost containment and address a broad range of non-clinical management
needs, including materials management, operating room logistics, patient and
staff scheduling and financial management. The Company's healthcare information
systems operate on personal computer networks and make extensive use of
electronic data interchange ("EDI"), enabling its customers to redesign their
resource management functions to enhance efficiency and productivity.
INDUSTRY BACKGROUND
Healthcare spending in the United States in 1995 is estimated to have
exceeded $1 trillion. In recent years, governmental and market-driven reform
initiatives have produced significant pressures on healthcare providers to
control costs. In the past, the financial risk of healthcare delivery was
principally absorbed by third-party payors, and providers were not focused on
cost containment. Through managed care and provider capitation arrangements,
the economic risk of healthcare delivery is shifting from payors to providers.
In order to manage this risk, providers are being forced to change the way that
they operate and are increasingly focused on measuring and controlling the cost
of delivering care. The shifting of risk has also encouraged consolidation
among healthcare providers and the emergence of integrated healthcare
organizations in order to achieve economies of scale and operating
efficiencies. See "Risk Factors--Uncertainty and Consolidation in Healthcare
Industry."
The Company believes that a significant need exists for information systems
that address the operational aspects of healthcare delivery. To date, there has
been a lack of emphasis on integrated information systems that effectively
manage these operational costs, which the Company believes constitute a
majority of providers' overall costs. Most existing healthcare information
systems address the billing and clinical aspects of healthcare delivery.
Without the necessary information, it has been difficult for healthcare
managers to allocate efficiently their resources--people, supplies, facilities,
equipment and services--or to understand their costs. These tasks have been
made more difficult by the operating complexity caused by provider
consolidation and the emergence of integrated healthcare organizations.
THE ENTERPRISE SOLUTION
Enterprise has developed information systems that address the operational
aspects of healthcare delivery. The Company offers an integrated suite of
resource management systems that assist users in more efficiently managing
people, supplies, facilities, equipment and services. These systems enable
healthcare providers to (i) improve productivity through the redesign and
automation of operational processes and (ii) obtain the information necessary
to measure and control costs. The Company's current product offerings address
materials management, operating room logistics, organization-wide patient and
staff scheduling and financial management, areas which the Company believes
offer significant opportunities for productivity improvement and cost savings.
The Company's systems can be easily integrated with a wide variety of third-
party products. The Company has developed more than two hundred interfaces for
sharing critical information among its applications and other healthcare
information systems. These interfaces ensure that the Company's systems may be
integrated into a healthcare provider's management information systems
environment, thereby eliminating the need to enter the same data more than once
for use in different applications.
23
<PAGE>
STRATEGY
The Company's objective is to continue to be a leading provider of resource
management systems by aggressively using technology to enable healthcare
providers to manage resources, redesign processes and reduce costs. See "Risk
Factors." The Company's strategy includes the following key elements:
Develop and Acquire New Products; Enhance Existing Products. The Company
intends to continue to strengthen existing product lines and expand into
additional operational management areas. This includes (i) developing and
acquiring new technologies and resource management products that complement
existing product lines, (ii) converting the Company's remaining DOS-based
products to a Windows platform, (iii) enhancing system functionality to better
address the needs of integrated healthcare organizations and (iv) developing
additional interfaces with other software products. See "Recent Developments."
Leverage Existing Customer Base. The Company's existing customer base
includes approximately 1,000 acute care hospitals, of which approximately 270
were added as customers when the Company acquired the Matkon division. See
"Recent Developments." Most of the Company's existing customers do not
currently use the Company's entire suite of products. Because of its high
customer retention rate, the Company believes that many of these customers are
candidates for additional components of its product suite and for upgrades to
Windows versions with enhanced functionality. Of those customers (other than
customers of the Matkon division) which have purchased the Company's current
products since January 1, 1991, more than 98% remained customers at July 1,
1996.
Increase Penetration in Hospital Market. The Company believes a significant
opportunity exists to penetrate further the approximately 2,900 large acute
care hospitals in the United States and Canada. The Company also believes a
significant opportunity now exists with the approximately 3,100 small
hospitals in the United States and Canada. The Company has expanded its direct
sales force and increased its marketing efforts to capitalize on these
opportunities and has established sales teams focused on these targeted
markets.
Expand Presence in Alternate Site Markets. The Company intends to expand its
limited presence in alternate site markets, including outpatient clinics,
ambulatory surgery centers and specialty laboratories. Accordingly, the
Company has expanded its sales force and is in the process of developing
strategic relationships with medical product suppliers. See "Recent
Developments."
Develop Additional Distribution Channels. The Company has entered into joint
marketing agreements with group purchasing organizations and hospital
management organizations and intends to pursue similar agreements with certain
healthcare information system resellers and medical product suppliers. These
agreements typically provide for these organizations to recommend the
Company's products on a preferred or exclusive basis.
PRODUCTS
The Company's major product lines include materials management, operating
room logistics, organization-wide patient and staff scheduling and financial
management. Generally, the Company's products are personal computer-based and
utilize either a DOS or Windows platform, linked by a number of network
operating systems, including Novell and Microsoft Windows NT. The software
acquired in the Matkon Acquisition primarily operates on mini computers using
a UNIX platform. The Company's products are modular in design, share a common
database, and may be used independently or bundled together in order to
provide an integrated resource management system solution that enables
healthcare managers to improve efficiency and obtain the information needed to
make strategic decisions regarding resource utilization. The Company's systems
follow the American National Standards Institute (ANSI) HL7 and X12 standards
to exchange data with other software.
24
<PAGE>
The following table describes the product lines currently offered by the
Company:
<TABLE>
<CAPTION>
INSTALLED
PRODUCT LINE PRODUCTS DESCRIPTION BASE
- -------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Materials NOVA DOS-based product used to manage sup-
Management plies from purchase to point-of-use,
streamlining acquisition and distribu- 484
tion through use of electronic requisi-
tioning, EDI and just-in-time inventory
management.
---------------------------------------------------------------------------
Nova.IDN Windows-based version of NOVA, enhanced
to address the more complex financial, *
security and access issues faced by in-
tegrated delivery networks.
---------------------------------------------------------------------------
TouchScan Windows-based, point-of-use supply man-
agement system providing just-in-time
inventory management, cost by patient 14
and procedure, automated patient charg-
ing and EDI.
---------------------------------------------------------------------------
TS2000 Windows-based point-of-use supply man-
agement system specifically tailoring 7
TouchScan functionality for specialty
laboratories.
---------------------------------------------------------------------------
Corporate Windows-based product that accumulates
Communications and analyzes purchasing information
System throughout a healthcare system to im- 3**
prove purchase contract negotiation and
compliance.
---------------------------------------------------------------------------
MATKON 2000 UNIX-based materials management product
which streamlines acquisition and dis-
tribution of supplies through the use 132
of electronic requisitioning, EDI and
just-in-time inventory management.
---------------------------------------------------------------------------
Interkon UNIX-based system which accumulates and
disseminates supply contract informa- 5
tion to buying group members.
- -------------------------------------------------------------------------------------------
Financial TITAN DOS-based accounts payable management
Management product, providing electronic invoice 287
receipt, automated invoice matching and
electronic payment capabilities.
---------------------------------------------------------------------------
Titan.IDN Windows-based accounts payable and gen- 1**
eral ledger system with EDI capability.
- -------------------------------------------------------------------------------------------
Operating Room ORBIT DOS-based operating room management
Logistics system, which automates scheduling, 340
physician preference lists, supply man-
agement and procedure charting.
---------------------------------------------------------------------------
Win/ORBIT Windows-based operating room scheduling 31
product.
- -------------------------------------------------------------------------------------------
Scheduling Enterprise Schedul- Windows-based, enterprise-wide patient
ing scheduling system incorporating clini-
cal sequencing protocols and enabling 20
centralized or decentralized schedul-
ing.
---------------------------------------------------------------------------
ESP for Windows Windows-based, enterprise-wide staff
scheduling which serves as a master
scheduler with a staff demographic da- 1**
tabase that supports an unlimited num-
ber of work areas and staff positions.
</TABLE>
*Currently in beta-testing.
**Product introduced in 1996.
25
<PAGE>
CUSTOMER SERVICE AND SUPPORT
The Company provides its customers with a range of services that begin prior
to product implementation and continue for the duration of their use. Service
and support helps customers realize the benefits offered by the Company's
software solutions and provides the Company with a significant base of
recurring revenue. The services offered by the Company are priced separately
and include the following:
Network Verification and Design. Prior to the installation of the Company's
software, customers normally contract for a network analysis, which includes a
survey of the customer's existing information systems, hardware and networks.
Implementation Services. The Company offers implementation services at the
time of a software purchase, including: (i) loading of the software, (ii)
analysis to identify required interfaces with other applications and the
conversion, where necessary, of data from existing systems into the required
formats and (iii) hands-on education.
Customer Education. The Company regularly conducts a wide range of product
educational seminars at its headquarters. More than 1,000 customer
representatives attended Company seminars in 1995.
Service and Support. The Company provides customer service and support after
installation of the software. Included with basic service is 24-hour, toll-
free access to customer support personnel.
Consulting. The Company provides on-site project management, including cost-
benefit analysis, system optimization review and, in some instances, long-term
staff management functions in an outsourcing capacity.
CUSTOMERS
The Company's customers include healthcare providers and medical products
suppliers located throughout the United States and in Canada. As of July 1,
1996, the Company had approximately 1,000 healthcare provider customers using
one or more of its systems, of which 270 were added as customers when the
Company acquired the Matkon division in 1996. Of those customers (other than
customers of the Matkon division) which have purchased the Company's current
products since January 1, 1991, more than 98% remained customers at July 1,
1996. In addition, approximately 90 suppliers have contracted with the Company
to maintain electronic data interchange with providers. No single customer
accounted for more than 5% of the Company's revenues in either of the last two
fiscal years.
Historically, the Company has focused its marketing efforts on the large
hospital market, which comprises the substantial majority of its customer
base. More recently, the Company has expanded its marketing efforts to include
small hospitals and alternate site providers such as outpatient clinics,
ambulatory surgery centers and specialty laboratories. The Company's potential
customers in the United States and Canada include approximately: (i) 2,900
large acute care hospitals (hospitals with 150 or more beds), (ii) 3,100 small
hospitals (hospitals with less than 150 beds), (iii) 7,000 outpatient clinics,
(iv) 2,100 freestanding ambulatory surgery centers and (v) 8,400 hospital-
based and free-standing specialty laboratories. Because the Company has
limited experience in non-hospital markets, it may find that significant
modifications to its products are necessary before they become useful to a
customer or that product pricing may have to be adjusted downward. See "Risk
Factors--Inability to Expand into New Markets."
SALES AND MARKETING
The Company sells its products and services through a direct sales force
located throughout the United States and in Canada that is organized according
to market segments. These segments include large hospitals, small hospitals
and clinics, specialty laboratories and groups and healthcare networks. The
sales cycle of the Company's systems and products varies substantially from
customer to customer and typically requires six to twelve months.
26
<PAGE>
Large Hospitals. The large hospital sales team consists of five sales
managers, twenty-eight sales representatives and eleven sales specialists who
assist in the more technical aspects of the sales process. These sales
representatives are responsible for selling additional components of the
Company's product suite to existing customers as well as selling the entire
product suite to large hospital prospects.
Small Hospitals, Clinics, Ambulatory Surgery Centers and Specialty
Laboratories. The small hospital, clinic and ambulatory surgery center sales
team consists of a sales manager and eight sales representatives. Although the
Company has a number of existing customers in this segment, this market is a
new focus for the Company. Increasingly, potential customers are affiliated
with a healthcare network or group purchasing organizations, thereby enabling
the Company to pursue small hospitals and clinics more cost effectively. This
team also intends to focus on sales of the Company's point-of-use resource
management product to specialty laboratories.
Groups and Healthcare Networks. The group and healthcare network sales team
is made up of a sales manager and two sales representatives. They are
responsible for developing business relationships between the Company and
those groups and networks that either own hospitals or exercise influence over
procurement decisions for their member institutions.
The Company has been named a preferred vendor by a number of group
purchasing organizations, including AllHealth, Health Services Corporation of
America, Horizon Healthcare, Inc., Healthcare Services of New England, Quorum
Health Resources, Inc., and University Hospital Consortium Services
Corporation, all of which provide group purchasing management services to
healthcare providers. Pursuant to these preferred vendor agreements, various
systems sold by the Company are endorsed by the group purchasing organizations
as the preferred or exclusively recommended product in a category. There are
more than 1,900 hospital members in these organizations. In addition, the
Company intends to pursue similar agreements with certain healthcare
information system resellers and medical product suppliers.
To support its sales force, the Company conducts comprehensive marketing
programs that include direct mail, focus groups, user conferences, site visits
and customer seminars. Decision makers for the Company's offerings are well
identified. Therefore, direct marketing techniques are emphasized to raise
marketplace awareness, influence decisions and generate qualified leads. The
marketing group consists of one manager and a staff of eight. Customer
seminars are periodically sponsored in association with Microsoft Corporation
("Microsoft") as part of its "Solution Provider" relationship with the
Company. Through this Solution Provider relationship, the Company has been
granted licenses to use Microsoft systems and applications products, server
products, development tools products and pre-release software in order to
assist the Company in providing comprehensive computer solutions to its
customers.
BACKLOG
As of June 30, 1996, the Company had approximately $24 million of backlog
(defined as unrecognized up-front fees pursuant to signed contracts) for
software and services that had not yet been delivered, of which $4 million of
backlog is attributable to the Matkon division, as compared to $13 million of
backlog as of June 30, 1995. These backlog amounts do not include revenues
related to annual support, maintenance and enhancement, continuing education
fees and hardware. Based upon its experience, the Company anticipates that a
majority of the backlog will be completed within the next twelve months.
However, the Company is unable to predict with any degree of accuracy the
amount of revenue it will achieve from its backlog in any particular quarter
because the length of the implementation cycle is dependent to a great extent
on factors outside the Company's control. These factors include the date on
which the installation starts (which the customer may delay), the amount of
internal resources that a customer commits to the installation process, the
availability of customer hardware, the structure and size of databases which
need to be converted and the number of interfaces with other information
systems. See "Risk Factors--Variable Quarterly Operating Results; Seasonality"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
27
<PAGE>
PRODUCT DEVELOPMENT AND TECHNOLOGY
The Company's product development strategy is directed at increasing the
functionality and performance of current products, adapting its products for
other healthcare market segments, integrating its products with products from
other healthcare software vendors and creating new products. The Company uses
several methods to identify new product opportunities and enhancements to
current products, including (i) targeted focus groups to collect feedback on
specific requirements, (ii) co-development arrangements with specific
customers and (iii) user conferences to achieve broad consensus on market
needs.
Through the use of co-development arrangements, the Company believes that it
is able to release products that better address current market demands.
Representative co-development partners have included Covenant Healthcare
System, Inc., Harris Methodist Health Systems, Rex Healthcare Services and
Stanford Health Services.
The Company is currently converting its NOVA and TITAN products from DOS to
a Windows client/server platform using an SQL database. Nova.IDN, the Windows-
based version of NOVA, is currently in beta-testing. Its Enterprise Scheduling
and TouchScan products already operate in this environment. In addition, the
functions of the Company's ORBIT product will be incorporated into Enterprise
Scheduling. See "Risk Factors--Product Conversions to Windows."
Generally, the Company's software operates on IBM-compatible personal
computers, using either a DOS or Windows platform, linked by a number of
network operating systems, including Novell and Microsoft Windows NT. The
software acquired in the Matkon Acquisition primarily operates on mini
computers using a UNIX platform. The Company's products are modular in design,
share common database elements and may be used independently or together. The
Company's systems follow the American National Standards Institute (ANSI) HL7
and X12 standards to exchange data with other software.
All new products are being developed with a three-tiered, client/server
architecture, using object-oriented methodologies and the C++ programming
language. The new products are designed to run on 32-bit Microsoft Windows
environments and various SQL databases. See "Risk Factors--Ability to Develop
New Software Products; Rapid Technological Change" and "--New Product
Acceptance."
COMPETITION
The market for healthcare information systems is intensely competitive. The
competitive factors affecting the market for the Company's software and
services include: vendor and product reputation, availability of products on
preferred computer and communications platforms, scalability, integration with
other applications, functionality and features, ease-of-use, quality of
support, documentation and training, product quality and performance, product
innovation, price and the effectiveness of marketing and sales efforts. The
relative importance of each of these factors depends upon the market segment.
Certain of the Company's competitors have significantly greater financial,
technical, research and development and marketing resources. As a result, they
may be able to respond more quickly to new or emerging technologies and
changes in customer requirements, or to devote greater resources to the
development, promotion, sale and support of their products than the Company.
In addition, consolidation in the healthcare information systems industry may
permit the Company's competitors to have access to increased financial and
administrative resources, greater technological capabilities and to realize
other operational efficiencies and competitive advantages. Moreover,
purchasers may prefer to buy computer systems from a single source provider.
Because the Company focuses exclusively on healthcare resource information
systems (as opposed to clinical or billing systems), it cannot serve as the
sole source of computer software for healthcare organizations. The Company
believes that its experience, its use of technology to create innovative
solutions, its reputation for customer service and its ability to bring
products to market faster than its competition through joint development
partnerships with key customers will enable the Company to compete effectively
in its marketplace. See "Risk Factors--Competition."
28
<PAGE>
PROPRIETARY RIGHTS AND LICENSES
The Company depends significantly upon proprietary technology. The Company
relies on a combination of copyright, trade secret and trademark laws,
confidentiality procedures and nondisclosure and other contractual provisions
to protect its proprietary rights. The Company seeks to protect its software,
documentation and other written materials under trade secret and copyright
laws, which afford only limited protection. The Company believes that, because
of the rapid pace of innovation within the computer software industry, factors
such as the technological and creative skills of its personnel, frequent
product enhancements and ongoing reliable product maintenance and support are
more important in establishing and maintaining a leadership position within the
industry than are the various legal protections of its technology. See "Risk
Factors--Dependence on Proprietary Technology; Risks of Infringement."
Typically, the Company distributes its products under software license
agreements that grant a customer a nonexclusive, nontransferable license to use
the Company's products for the customer's internal operation at designated
sites. In general, the license agreements require the Company to deposit the
source code for its software products in an escrow that may be accessed by the
customer in the event of the Company's liquidation, dissolution or bankruptcy,
or if the Company fails to cure a material breach of contract.
The Company uses the "TouchScan" name under an agreement with a third party.
This agreement does not provide for the Company's use of the name in the
specialty laboratory market. Consequently, the Company sells its point-of-use
resource management product in this market under the name "TS2000."
GOVERNMENTAL REGULATION
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operation
of healthcare providers. Many federal and state legislators have announced that
they intend to propose programs to reform the United States healthcare system
at both the federal and state level. These programs may contain proposals to
increase governmental involvement in healthcare, lower reimbursement rates and
otherwise change the environment in which providers operate. Healthcare
providers may react to these proposals and the uncertainty surrounding such
proposals by curtailing or deferring investments, including investments in the
Company's products and related services. See "Risk Factors--Uncertainty and
Consolidation in the Healthcare Industry."
LEGAL PROCEEDINGS
The Company is not currently involved in any material legal proceedings.
EMPLOYEES
As of July 1, 1996, the Company had 413 full-time employees, of which 70 were
in sales and marketing, 106 in product development, 189 in customer services
and 48 in administration. None of the Company's employees is represented by a
labor union, and the Company is not aware of any organizational efforts on
behalf of any labor unions involving the Company's employees.
FACILITIES
The Company leases approximately 59,000 square feet of space at its corporate
headquarters located in Wheeling, Illinois, pursuant to leases which expire on
December 31, 2001 with renewal options through December 31, 2006 and
approximately 12,100 square feet of space in Overland Park, Kansas pursuant to
a sublease which expires on June 1, 1997.
29
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The Company's executive officers and directors are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Glen E. Tullman.............. 37 Chief Executive Officer and Director
Joseph E. Carey.............. 38 President and Secretary
David B. Mullen.............. 45 Chief Financial Officer
Steven M. Katz............... 46 Chief Operating Officer
David A. Carlson............. 44 Executive Vice President, Business Development
Stanley A. Crane............. 47 Executive Vice President, Software Engineering
James H. Ray................. 54 Senior Vice President, Finance and Treasurer
Thomas R. Hutchison(1)(2).... 55 Chairman of the Board and Director
Thomas R. Pirelli............ 48 Director
Robert A. Compton(2)......... 40 Director
Bernard Goldstein(1)(2)...... 65 Director
M. Fazle Husain(1)........... 32 Director
</TABLE>
- --------
(1) Member of Compensation Committee of the Board of Directors.
(2) Member of Audit Committee of the Board of Directors.
Glen E. Tullman has served as a Director of the Company since March 1993 and
as Chief Executive Officer since October 1994. From 1983 to 1994, Mr. Tullman
was employed by CCC Information Services Inc., a computer software company
servicing the insurance industry, most recently as President and Chief
Operating Officer. He serves on the board of directors of Insurance Auto
Auctions, Inc. Mr. Tullman holds a B.A. degree from Bucknell University and a
degree from St. Antony's College, Oxford University, Oxford, England.
Joseph E. Carey has served as President of the Company since April 1993 and
has served as Secretary since November 1994. From 1987 to April 1993, Mr. Carey
held various management positions with the Company in product management and
operations. From 1986 to 1987, he was employed by BioTechnica Diagnostics, Inc.
as Director of Finance and Administration. From 1980 to 1986, he was employed
by Ernst & Young LLP, most recently as Audit Manager. Mr. Carey holds a B.B.A.
degree from the University of Notre Dame and an M.B.A. degree from the
University of Chicago.
David B. Mullen has served as Chief Financial Officer of the Company since
January 1995. From 1983 to 1995, Mr. Mullen was employed in various positions
by CCC Information Services Inc., including Vice Chairman, President and Chief
Financial Officer. Prior to that, he was employed by Ernst & Young LLP. Mr.
Mullen holds an A.B. degree from Princeton University and an M.B.A. degree from
the University of Pennsylvania.
Steven M. Katz has served as Chief Operating Officer of the Company since
November 1994. From December 1993 to November 1994, Mr. Katz was employed by
CCC Information Services Inc. as President of its Insurance Division. From
January 1993 to December 1993, he was employed as Chief Operating Officer by
Melson Technologies, Inc., a computer software company serving the real estate
industry. From 1990 to December 1992, Mr. Katz was employed by LPC/A Pitney
Bowes Co., a direct-marketing computer software company, most recently as
President. Prior to that, Mr. Katz held various positions with Xerox
Corporation and IBM. Mr. Katz holds a B.S. degree in Economics from the
University of Illinois.
30
<PAGE>
David A. Carlson, a co-founder of the Company, has served as Executive Vice
President, Business Development of the Company since November 1994. Since the
Company's inception, Mr. Carlson has held various management positions with the
Company, including Executive Vice President, Strategic Alliances; Chief
Operating Officer; and Senior Vice President, Software Development. Mr. Carlson
serves as a founding Director of the Health Level 7 (HL7) International
Standards Organization.
James H. Ray, has served as Treasurer of the Company since 1987 and as Senior
Vice President, Finance of the Company since January 1995. From 1987 to January
1995, Mr. Ray served as Chief Financial Officer of the Company. Mr. Ray holds a
B.S. degree from the University of Illinois.
Stanley A. Crane has served as Executive Vice President, Software Engineering
of the Company since July 1995. From February 1995 to May 1995, Mr. Crane was
employed by Global Village Communications, a computer software company, as
Director of Software. Additionally, from December 1994 to June 1995, Mr. Crane
provided Internet consulting services to IBM and Network Computing Devices,
Inc. From March 1993 to November 1994, Mr. Crane was employed by Lotus
Development Corporation, a computer software company, most recently as Senior
Director of Research and Development. From December 1991 to February 1993, he
was employed by WordStar International, Inc., a computer software company, most
recently as Vice President of Research and Development. From July 1989 to
November 1991, Mr. Crane was employed by Ashton-Tate, Inc., a computer software
company, most recently as Director of Product Development for DBASE IV. Mr.
Crane holds a B.A. degree from Fort Lewis College and an M.A. degree from the
University of Wyoming.
Thomas R. Hutchison has been a Director of the Company since June 1983 and
has served as Chairman of the Board since July 1995. He serves as Chairman and
Chief Executive Officer of Hawkeye Argus, Inc., a private company with
diversified investments. From 1964 until August 1, 1995, Mr. Hutchison was
employed by Merrill Lynch and Co., Inc., most recently as First Vice
President--Private Client Group.
Thomas R. Pirelli, a co-founder of the Company, has served as a Director of
the Company since 1981. From 1981 to December 1995, Mr. Pirelli held various
positions with the Company, including Chairman of the Board, Chief Executive
Officer and President. In December 1995, Mr. Pirelli resigned as an officer and
terminated his employment with the Company. See "Management--Severance
Agreement." Prior to founding the Company, Mr. Pirelli served as a Director of
Information Systems for American Hospital Supply Corporation. Mr. Pirelli holds
a B.S.E. degree from Princeton University.
Robert A. Compton has served as a Director of the Company since May 1993.
Since 1988, Mr. Compton has been a general partner of CID Equity Partners I,
L.P. and a general partner of CID Equity Partners II, L.P. (collectively,
"CID"). From 1985 to 1988, he served as an investment manager with First
Chicago Venture Capital. Mr. Compton serves as a Director of Sofamor Danek
Group, Inc., a medical devices manufacturer, and as a director of six private
companies. Mr. Compton is also a Director of the Ewing Marion Kauffman
Foundation.
Bernard Goldstein has served as a Director of the Company since March 1993.
Mr. Goldstein has been Managing Director of Broadview Associates, L.P., an
investment banking firm, since 1979. See "Certain Transactions." Mr. Goldstein
currently serves as a Director of Apple Computer, Inc. where he is the Chairman
of the Audit Committee. Mr. Goldstein also serves as a Director of SPSS, Inc.,
Sungard Data Systems, Inc. and Franklin Electronic Publishers, Inc. He is Past
President of The Information Technology Association of America.
M. Fazle Husain has served as a Director of the Company since August 1994.
Mr. Husain is a Vice President of Morgan Stanley & Co. Incorporated, an
investment banking firm ("Morgan Stanley") where he has been employed since
1991, and of the Managing General Partner of certain partnerships affiliated
with Morgan Stanley which beneficially own Common Stock of the Company. Mr.
Husain was also employed at Morgan Stanley from 1987 until 1989. Mr. Husain
serves on the Board of Directors of several private
31
<PAGE>
healthcare and healthcare information technology companies. Mr. Husain
received an Sc.B. in Chemical Engineering from Brown University and an MBA
from the Harvard Graduate School of Business Administration.
The Board of Directors of the Company may consist of up to nine members and
is divided into three classes with staggered three-year terms. Currently, the
Board of Directors consists of six persons and each class consists of two
directors. Messrs. Husain and Hutchison serve in the class whose term expires
on the date of the annual meeting of stockholders next following the end of
fiscal 1996; Messrs. Pirelli and Tullman serve in the class whose term expires
on the date of the annual meeting of stockholders next following the end of
fiscal 1997; and Messrs. Goldstein and Compton serve in the class whose term
expires on the date of the annual meeting of stockholders next following the
end of fiscal 1998. The executive officers of the Company are elected at each
annual meeting of the Board of Directors and serve at the discretion of the
Board of Directors.
Two of the Company's current Directors, Messrs. Compton and Husain, were
nominated and elected to the Company's Board of Directors prior to the
Company's initial public offering in accordance with certain investment and
related agreements. See "Management--Compensation Committee Interlocks and
Insider Participation."
DIRECTOR COMPENSATION
Directors who are not executive officers of the Company are paid a fee of
$1,000 for each board meeting attended in person and are reimbursed for travel
expenses incurred in connection with attending meetings. Directors are not
entitled to additional fees for serving on committees of the Board of
Directors. Pursuant to the terms of the formula program of the Company's Long
Term Incentive Plan, each current director of the Company who was not
otherwise employed by the Company when he became a director automatically was
granted an option to purchase 15,000 shares of Common Stock upon his initial
election to the Board of Directors. These options vest in three annual
installments of 5,000 shares each. Messrs. Goldstein, Hutchison and Tullman
each received options to purchase 15,000 shares of Common Stock, all of which
have vested. These options are exercisable at $4.57 per share. When CID became
a principal stockholder in April 1993, it acquired the right to appoint a
nominee to the Company's Board of Directors. Upon election of its nominee, Mr.
Compton, CID was granted an option to purchase 15,000 shares of Common Stock,
all of which are now vested. These options are exercisable at $4.57 per share.
When Morgan Stanley became a principal stockholder in March 1994, it also
acquired the right to appoint a nominee to the Company's Board of Directors.
Upon the election of such nominee (who has since resigned and been replaced by
Mr. Husain), Morgan Stanley was granted an option to purchase 15,000 shares of
Common Stock, 5,000 of which vested on April 21, 1995 and April 21, 1996 and
5,000 of which will vest on April 21, 1997. These options are exercisable at
$5.60 per share. Pursuant to the terms of the formula program of the Company's
Long-Term Incentive Compensation Plan, each director of the Company appointed
in the future who is not otherwise employed by the Company automatically will
be granted an option to purchase 5,000 shares of Common Stock upon his or her
initial election to the Board of Directors. The option will vest in three
equal annual installments. See "Management--Compensation Pursuant to Plans"
and "Certain Transactions."
32
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth compensation with respect to the annual and
long-term compensation earned by the Company's Chief Executive Officer and the
four most highly compensated executive officers other than the Chief Executive
Officer during the years ended December 31, 1995 and December 31, 1994 (the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------- ------------
OPTIONS
NAME AND PRINCIPAL FISCAL OTHER ANNUAL (# OF ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION SHARES) COMPENSATION(1)
- ------------------ ------ -------- ------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Glen E. Tullman(2)...... 1995 $200,000 $42,000 -- -- --
Chief Executive Officer 1994(2) 50,000 1,000 $3,000(3) 144,846 --
Joseph E. Carey......... 1995 132,000 27,720 -- 17,500 --
President 1994 121,000 45,980 -- -- $7,653
David B. Mullen......... 1995(4) 160,410 28,072 -- 77,500 --
Chief Financial Officer
Steven M. Katz.......... 1995 170,000 29,750 -- 17,500 --
Chief Operating Officer 1994(5) 22,558 451 -- 55,000 --
David A. Carlson ....... 1995 120,900 16,322 -- 12,500 --
Executive Vice
President 1994 113,400 36,288 -- -- 7,601
Business Development
</TABLE>
- --------
(1) These amounts represent contributions to the Company's Employee Stock
Ownership Plan (the "ESOP"). The ESOP was merged into the Company's 401(k)
Savings Plan in October 1995. No contributions to the ESOP have been made
since 1994, although forfeitures by existing participants will cause
additions to other participants, including certain of the Named Executive
Officers. See "Management--Compensation Pursuant to Plans."
(2) Mr. Tullman's salary and bonus in 1994 reflect amounts paid from the
commencement of his employment with the Company in October 1994 through
fiscal year ended December 31, 1994.
(3) Mr. Tullman earned $3,000 as an outside director of the Company prior to
his employment.
(4) Mr. Mullen became the Company's Chief Financial Officer in January 1995.
(5) Mr. Katz' salary and bonus in 1994 reflect amounts paid from the
commencement of his employment with the Company in November 1994 through
the fiscal year ended December 31, 1994.
33
<PAGE>
STOCK OPTIONS
The following table contains information concerning the stock option grants
made to each of the Named Executive Officers in 1995:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(2)
------------------------------------------ ------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO PRICE
OPTIONS EMPLOYEES PER EXPIRATION
GRANTED(1) IN 1995 SHARE DATE 5% 10%
---------- ---------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Glen E. Tullman.. -- -- -- -- -- --
Joseph E. Carey.. 7,500 4.4% $ 5.93 06/15/05 $210,483 $ 509,585
10,000 25.00 12/22/05
David B. Mullen.. 55,000(3) 19.5 5.93 01/23/05 494,207 1,228,603
7,500 5.93 06/15/05
10,000 25.00 12/22/05
Steven M. Katz... 7,500 4.4 5.93 06/15/05 210,483 509,585
10,000 25.00 12/22/05
David A. Carlson. 7,500 3.1 5.93 06/15/05 131,871 310,367
5,000 25.00 12/22/05
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
- --------
(1) Generally, options granted under the Company's Long-Term Incentive
Compensation Plan become exercisable over a three-year period at the rate
of 33% per year and have ten-year terms so long as the optionee's
employment with the Company continues. All options were granted at fair
market value as determined by the Board of Directors of the Company on the
date of grant with the exception of the options that were granted in June
1995. After the June 1995 options were granted, the Company determined that
the fair market value of these options were $8.00 at the time of grant,
rather than $5.93. Accordingly, the Company has recorded an adjustment for
compensation expenses, but the exercise price has not been changed.
(2) Future value of current-year grants assuming appreciation in the market
value of the Common Stock of 5% and 10% per year over the ten-year option
period. The actual value realized may be greater than or less than
potential realizable values set forth in the table.
(3) Mr. Mullen's option to purchase 55,000 shares of Common Stock provides for
vesting in four equal annual installments beginning on January 23, 1995.
34
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth information concerning option holdings for
1995 with respect to each of the Named Executive Officers. No options were
exercised by the Named Executive Officers in 1995:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1995 DECEMBER 31, 1995(1)
------------------------- -------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Glen E. Tullman(2).......... 67,938 91,908 $1,682,837 $2,264,980
Joseph E. Carey............. 40,000 37,500 1,037,200 757,875
David B. Mullen............. 13,750 63,750 337,837 1,280,287
Steven M. Katz.............. 27,500 45,000 675,675 914,950
David A. Carlson............ 33,334 29,166 864,351 643,924
</TABLE>
- --------
(1) Value of unexercised options equals fair market value at December 31, 1995
(market price $30.50) of a share of Common Stock into which the option can
be converted, less exercise price, times the number of options
outstanding.
(2) Does not include options to purchase 144,846 shares of issued and
outstanding Common Stock from Thomas R. Pirelli, of which options to
purchase 57,938 shares are currently exercisable.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1995, the Compensation Committee
of the Board of Directors consisted of Messrs. Hutchison, Goldstein and
Tullman until February 1995. Mr. Husain, a Director and a Vice President with
Morgan Stanley, one of the Company's principal stockholders, replaced Mr.
Tullman as a member of the Compensation Committee in February 1995. Mr.
Tullman has served as Chief Executive Officer of the Company since October
1994.
On April 30, 1993, the Company entered into an Investment Agreement with CID
Ventures, L.P., and CID Equity Capital III, L.P. (collectively, the "CID
Investors"). On March 31, 1994, the Company entered into an Investment
Agreement with Morgan Stanley Venture Investors, L.P., Morgan Stanley Venture
Capital Fund II, L.P., and Morgan Stanley Venture Capital Fund II, C.V.
(collectively, the "Morgan Investors"). Pursuant to these investment
agreements, the Company issued 218,818 shares of Common Stock in April 1993 to
the CID Investors at a price of $4.57 per share for an aggregate purchase
price of $999,998.26 and 642,857 shares of Common Stock in March 1994 to the
Morgan Investors at a price of $5.60 per share for an aggregate purchase price
of $3,599,999.20. On April 30, 1993, the Company also sold 54,704 shares of
Common Stock for an aggregate purchase price of $249,997.28 ($4.57 per share)
to Mr. Goldstein, a Director of the Company. In addition, the Company, the CID
Investors, the Morgan Investors and others entered into an Amended and
Restated Registration Rights Agreement dated March 31, 1994, pursuant to which
the CID and Morgan Investors have been granted certain demand and piggyback
registration rights. See "Description of Capital Stock--Registration Rights."
Messrs. Compton and Husain were nominated and elected to the Company's Board
of Directors prior to the Company's initial public offering in accordance with
these investment and related agreements.
The Company entered into an agreement with Broadview Associates, L.P.
("Broadview"), effective as of February 1, 1996, pursuant to which Broadview
agreed to: (i) study the Company's existing corporate strategy; (ii) help
establish acquisition transaction criteria consistent with the Company's
goals; (iii) develop suggested target candidates; (iv) screen target
candidates under consideration against agreed criteria; (v) make approaches
and introductions to target candidates; and (vi) help negotiate and structure
transactions. The current term of this agreement expired on June 30, 1996.
Pursuant to the agreement, the Company paid Broadview a fee of $380,000 in
connection with the Matkon Acquisition. Bernard Goldstein, a Director of the
Company and a member of the Compensation Committee, is a Managing Director of
Broadview.
35
<PAGE>
EMPLOYMENT AGREEMENTS
Messrs. Tullman, Carey, Mullen, Katz and Carlson have employment agreements
with the Company. The agreements fix each of the officers' base compensation
and provide for reimbursement of travel and other expenses in connection with
such officers' employment. In general, the agreements provide for annual
bonuses of up to 40% of the officer's salary upon attaining certain performance
objectives (such as total revenues and operating income) determined by the
Board of Directors at the beginning of the calendar year. The initial term of
the agreements expire on August 31, 1996, are renewable for successive periods
of one year after expiration of the initial term and are terminable by the
Company with cause, as defined in the employment agreements. Upon termination
by the Board of Directors without cause, the executive will be entitled to
receive a payment equal to his then current annual base salary, in addition to
all compensation earned but unpaid as of the date of termination. If so
terminated, the Company will be obligated to pay the following amounts to the
Named Executive Officers: Mr. Tullman, $220,000; Mr. Carey, $170,000; Mr.
Mullen, $200,000; Mr. Katz, $190,000; and Mr. Carlson, $135,000. In addition,
if employment of any officer is terminated by the Company within twelve months
of a change in control, the executive will be entitled to the following
additional benefits: (i) any options to purchase Common Stock, which would
otherwise be nonvested, will immediately vest, (ii) 100% of the bonus to which
he would have otherwise been entitled had he been employed on the last day of
the calendar year (and then been terminated) and (iii) payment of his health
insurance premiums for the duration of the COBRA continuation period. These
employment agreements also contain confidentiality and noncompetition
provisions for the terms set forth in each agreement.
SEVERANCE AGREEMENT
On January 9, 1996, the Company entered into a severance agreement with
Thomas R. Pirelli (the "Severance Agreement"). Pursuant to the Severance
Agreement, Mr. Pirelli terminated his employment with the Company. As a
severance payment, the Company agreed to pay Mr. Pirelli $200,000, plus $19,682
as accrued bonus for 1993 and 1994 and $30,000 as a bonus for 1995. In
consideration for such payment, Mr. Pirelli agreed to a general release of all
claims against the Company, a covenant not to sue and an agreement not to
solicit any of the Company's employees through December 31, 1997. Until January
9, 1998, Mr. Pirelli is subject to noncompetition covenants contained in his
original employment agreement with the Company.
COMPENSATION PURSUANT TO PLANS
Long-Term Incentive Compensation Plan. The Board of Directors has adopted the
Enterprise Systems, Inc. Long-Term Incentive Compensation Plan (the "Long-Term
Plan"), which was an amendment and restatement of the Company's 1993 Stock
Option Plan. The purpose of the Long-Term Plan is to promote the interests and
enhance the value of the Company by linking the personal interests of its
employees and directors with those of its stockholders, by inducing individuals
of outstanding ability and potential to join and remain with the Company, by
encouraging and enabling eligible employees and directors to acquire
proprietary interests in the Company, and by providing the participating
employees and directors with an additional incentive to promote the success of
the Company.
Awards under the Long-Term Plan may be in the form of stock options
(including both incentive stock options that meet the requirements of Section
422 of the Internal Revenue Code and nonqualified stock options), stock awards,
restricted stock grants, stock appreciation rights ("SARs") and performance
shares (collectively, "Awards"). The Long-Term Plan also includes the formula
program. The formula program provides for the automatic grant of options to
purchase shares of Common Stock to nonemployee directors of the Company.
Pursuant to the terms of the formula program, each director of the Company who
is not otherwise employed by the Company automatically will be granted an
option to purchase 5,000 shares of Common Stock upon his or her initial
election to the Board. The option will vest in three annual installments, with
the first such installment to vest on the first anniversary of the option grant
date.
36
<PAGE>
Awards will be evidenced by a written agreement, setting forth the terms and
conditions of that Award, which need not be identical for each Award. Any
Award issued under the Long-Term Plan that is forfeited, expired or terminated
prior to vesting or exercise will again become available for grant under the
Plan.
The Long-Term Plan is administered by the Compensation Committee (the
"Committee"). The Committee has discretion to determine which "key employees"
and "key non-employees" (non-employee directors, consultants or independent
contractors) will be recipients of Awards under the Long-Term Plan, and to
establish the terms, conditions and limitations of each Award (subject to the
terms of the Long-Term Plan and the applicable provisions of the Internal
Revenue Code), including the type and amount of the Award, the number of
shares of Common Stock to be subject to any Award of options or restricted
stock, or the amount of cash or rights to be included in an Award, the
exercise price of any options, and the date or dates upon which options become
exercisable or upon which any restrictions applicable to any Award lapse. The
Committee also has full power to construe and interpret the Long-Term Plan and
the Awards granted under the Long-Term Plan, and to establish rules and
regulations necessary or advisable for its administration. The determination
of the Committee with respect to any matter under the Long-Term Plan to be
acted upon by the Committee is conclusive and binding.
Awards under the Long-Term Plan may be granted only to key employees and key
non-employees of the Company and its subsidiaries. The Committee determines
whether a particular employee or non-employee qualifies as a key employee or
non-employee. Awards also may be granted to a prospective employee,
conditioned upon such person becoming an employee. Members of the Committee
are not eligible for Awards while serving on the Committee, unless the Award
is made pursuant to a formula that states the amount and price of the Common
Stock to be awarded to the members of the Committee and specifies the timing
of the Award.
The maximum number of shares of Common Stock which may be issued and sold
under the Long-Term Plan, subject to adjustment, is 1,114,846 shares. As of
July 1, 1996, participants in the Long-Term Plan held options to purchase an
aggregate of 829,415 shares of Common Stock at per share exercise prices
ranging from $4.57 to $38.50, with a weighted average exercise price per share
of $10.11. As of July 1, 1996, no shares of Common Stock have been issued
pursuant to restricted stock awards and a total of 103,549 shares of Common
Stock remain available for issuance under the Plan. In general, options
automatically vest upon a change in control of the Company depending on the
terms of each individual grant.
401(k) Savings Plan. The Enterprise Systems, Inc. 401(k) Savings Plan (the
"401(k) Plan") is a tax qualified "cash or deferred" plan under Section 401(k)
of the Internal Revenue Code in which all of the Company's employees,
including executive officers, are eligible to participate after completing
three months of service. Participants are able to defer up to 15% of their
salary (to a maximum of $9,500 in 1996, as adjusted annually) to be
contributed to a trust fund and invested, at the participant's election, in
equity or fixed income investments offered by the administrator of the 401(k)
Plan. The Company has the discretion to match a percentage of the
contributions made to the 401(k) Plan in any year. In 1996, the Company will
match 25% of the first $1,000 of salary contributed by each employee, not to
exceed a maximum annual contribution of $250 by the Company. The employees'
contributions are fully vested and nonforfeitable at all times. A
participant's contributions become distributable upon the participant's
retirement, death, disability or other termination of employment and, under
certain emergency circumstances, may be distributed during employment.
In October 1995, the Company merged its ESOP into the 401(k) Plan with
account balances from the ESOP transferring to the 401(k) Plan. The trustee of
the 401(k) Plan is appointed from time to time by the Board of Directors and
currently is Emjay Corporation (the "Trustee"). Shares of Common Stock that
have been allocated to participants under the ESOP and which remain as part of
their account balances in the 401(k) Plan will be voted by the Trustee in
accordance with directions from each participant. Any allocated Common Stock
with respect to which voting directions are not given will be voted by the
Trustee.
37
<PAGE>
CERTAIN TRANSACTIONS
On April 30, 1993, the Company entered into an Investment Agreement with CID
Ventures, L.P., and CID Equity Capital, L.P. (collectively, "CID Investors").
On March 31, 1994, the Company entered into an Investment Agreement with Morgan
Stanley Venture Investors, L.P., Morgan Stanley Venture Capital Fund II, L.P.,
and Morgan Stanley Venture Capital Fund II, C.V. (collectively, the "Morgan
Investors"). Pursuant to these investment agreements, the Company issued
218,818 shares of Common Stock in April 1993 to the CID Investors at a price of
$4.57 per share for an aggregate purchase price of $999,998.26 and the Company
issued 642,857 shares of Common Stock in March 1994 to the Morgan Investors at
a price of $5.60 per share for an aggregate purchase price of $3,599,999.20. In
addition, the Company, the CID Investors, the Morgan Investors and others
entered into an Amended and Restated Registration Rights Agreement, dated March
31, 1994, pursuant to which the CID and Morgan Investors have been granted
certain demand and piggyback registration rights. See "Description of Capital
Stock--Registration Rights." On April 30, 1993, the Company also sold 54,704
shares of Common Stock for an aggregate purchase price of $249,997.28 ($4.57
per share) to Mr. Goldstein, a Director of the Company. See "Management--
Compensation Committee Interlocks and Insider Participation."
In April 1993, the Company and ESI Research & Development Limited Partnership
(the "Partnership") entered into a letter agreement, pursuant to which the
Company purchased from the Partnership all right, title and interest in and to
certain capital asset management software for a purchase price of $200,000. Mr.
Pirelli, a Director of the Company, was a limited partner with a 7% ownership
interest in the Partnership prior to its dissolution in June 1993. The purchase
price for this software was based upon a professional valuation.
On December 29, 1988, the Company made a term loan of approximately
$3,100,000 at an interest rate of 8.94% to fund the ESOP. The ESOP serviced the
principal and interest requirements on this loan with contributions from the
Company. The final payment was made in December 1994. Company contributions to
the ESOP amounted to approximately $590,000 and $543,000 for 1993 and 1994,
respectively.
The Company entered into an agreement with Broadview Associates, L.P.
("Broadview"), effective as of February 1, 1996, pursuant to which Broadview
agreed to: (i) study the Company's existing corporate strategy; (ii) help
establish acquisition transaction criteria consistent with the Company's goals;
(iii) develop suggested target candidates; (iv) screen target candidates under
consideration against agreed criteria; (v) make approaches and introductions to
target candidates; and (vi) help negotiate and structure transactions. The
current term of this agreement expired on June 30, 1996. Pursuant to the
agreement, the Company paid Broadview a fee of $380,000 in connection with the
Matkon Acquisition. Bernard Goldstein, a Director of the Company and a member
of the Compensation Committee, is a Managing Director of Broadview.
38
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of July 1, 1996, and as adjusted to
reflect the sale of the shares offered hereby, by: (i) each person who is
known by the Company to beneficially own more than five percent of the
Company's Common Stock; (ii) each of the Company's Directors; (iii) each of
the Named Executive Officers; (iv) all Directors and executive officers of the
Company as a group; and (v) the Selling Stockholders. Except as indicated in
the footnotes to this table, the Company believes that the persons named in
the table have sole voting and investment power with respect to all Common
Stock shown as beneficially owned by them, subject to community property laws
where applicable.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(1) NUMBER OF AFTER OFFERING(1)
----------------------- SHARES -----------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
---- ------------ ---------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Enterprise 401(k)
Plan(2)................ 947,763 12.6% 10,708 937,055 11.0%
Glen E. Tullman(3)...... 100,661 1.3 57,938 42,723 *
Joseph E. Carey(4)...... 68,426 * 25,000 43,426 *
David B. Mullen(5)...... 28,200 * 15,000 13,200 *
Steven M. Katz(6)....... 23,525 * 23,125 400 *
David A. Carlson(7)..... 143,183 1.9 20,000 123,183 1.4
Thomas R. Hutchison(8).. 115,000 1.5 -- 115,000 1.4
Thomas R. Pirelli(9).... 1,586,630 21.1 250,000 1,278,692 15.0
James H. Ray(10)........ 50,628 * 15,965 34,663 *
Stanley A. Crane(11).... 8,334 * 3,000 5,334 *
Robert A. Compton(12)... 7,056 * 7,056 -- --
M. Fazle Husain(13)..... -- -- -- -- --
Bernard Goldstein(14)... 87,561 1.2 -- 87,561 1.0
CID Equity Capital III,
L.P.(12)............... 40,188 * 40,188 -- --
CID Ventures, L.P.(12).. 37,312 * 37,312 -- --
Morgan Stanley Venture
Capital Fund II,
L.P.(15)............... 652,857 8.7 328,173 324,684 3.8
Duncan-Hurst Capital
Management, Inc.(16)... 384,680 5.1 -- 384,680 4.5
All executive officers
and directors as a
group
(12 persons)........... 2,238,766 28.9 494,584 1,744,182 20.2
</TABLE>
- --------
* Less than 1%
(1) Applicable percentage of ownership as of July 1, 1996 is based upon
7,519,581 shares of Common Stock outstanding. Applicable percentage
ownership after this offering is based upon 8,528,206 shares of Common
Stock outstanding, which includes 108,625 shares currently subject to
stock options to be exercised by Selling Stockholders in connection with
this offering. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission, and (except as otherwise
noted) includes voting and investment power with respect to the shares
shown as beneficially owned. Shares of Common Stock subject to options
currently exercisable or exercisable on or before August 30, 1996 are
deemed outstanding for computing the percentage ownership of the person
holding such options, but are not deemed outstanding for computing the
percentage ownership of any other person.
(2) Includes 20,526, 27,134, 39,975 and 29,828 401(k) Plan shares
beneficially owned by Messrs. Carey, Carlson, Pirelli and Ray,
respectively. The Trustee of the 401(k) Plan is Emjay Corporation, 725
West Glendale Avenue, Glendale, Wisconsin 53209. See "Management--
Compensation Pursuant to Plans." Of the 10,708 shares being sold by the
401(k) Plan, 5,965 and 2,500 are being sold for the benefit of Messrs.
Carey and Ray, respectively.
(3) Includes options to purchase 73,876 shares of Common Stock, including
options to purchase 57,938 shares of Common Stock currently outstanding
and held by Thomas R. Pirelli. Mr. Tullman is exercising such option and
is offering such shares for sale in this offering.
(4) Includes options to purchase 47,500 shares of Common Stock and 18,026
shares of Common Stock held in the 401(k) Plan.
(5) Includes options to purchase 25,000 shares of Common Stock.
(6) Includes options to purchase 23,125 shares of Common Stock.
39
<PAGE>
(7) Includes options to purchase 52,500 shares of Common Stock, 27,134 shares
of Common Stock held in the 401(k) Plan, and 63,549 shares of Common
Stock held in the David A. Carlson Trust dated October 12, 1992.
(8) Mr. Hutchison serves as the trustee of an irrevocable trust for each of
Mr. Pirelli's two daughters and has beneficial ownership of 100,000
shares of Common Stock held in such trusts (the "Pirelli Children
Trusts"). Mr. Pirelli is a Director and principal stockholder of the
Company.
(9) Includes 57,938 shares of Common Stock subject to options held by Glen E.
Tullman, 39,975 shares of Common Stock held in the 401(k) Plan and
1,537,471 shares of Common Stock held in the Thomas R. Pirelli Trust
U/A/D January 26, 1990. In connection with this offering, Mr. Tullman is
exercising his option to purchase the 57,938 shares of Mr. Pirelli's
Common Stock and therefore such 57,938 shares have been excluded from Mr.
Pirelli's share ownership following this offering. Mr. Pirelli disclaims
beneficial ownership in the 100,000 shares of Common Stock held in the
Pirelli Children Trusts. Mr. Pirelli's address is 909 Oakhurst,
Riverwoods, Illinois 60015.
(10) Includes options to purchase 20,000 shares of Common Stock and 29,828
shares of Common Stock held in the 401(k) Plan.
(11) Includes options to purchase 8,334 shares of Common Stock.
(12) Mr. Compton holds 7,056 shares of Common Stock. CID Equity Capital III,
L.P. ("CID-III") holds 40,188 shares of Common Stock. CID Ventures, L.P.
("CID-V") holds 22,312 shares of Common Stock and options to purchase
15,000 shares of Common Stock. CID-V is exercising its options to
purchase the 15,000 shares of Common Stock and is offering such shares
for sale in this offering. Mr. Compton is a general partner of CID Equity
Partners I, L.P. ("CID-I"), which is the general partner of CID-V and he
is a general partner of CID Equity Partners II, L.P. ("CID-II"), which is
the general partner of CID-III. Accordingly, Mr. Compton may be
attributed beneficial ownership of the shares owned by CID-V and CID-III.
The other general partners of CID-I are John T. Hackett and John C.
Alpin. Mr. Compton disclaims beneficial ownership of such shares beyond
his ownership interest in CID-I and CID-II. Mr. Compton serves as a
director of the Company as a nominee of CID-V and CID-III. The address of
Mr. Compton, CID-I, CID-II, CID-III and CID-V is One American Square,
Suite 2850, Box 82074, Indianapolis, Indiana 46282.
(13) Mr. Husain disclaims beneficial ownership of the shares held by Morgan
Stanley.
(14) Includes options to purchase 15,000 shares of Common Stock.
(15) Includes options to purchase 10,000 shares of Common Stock and 161,266
shares of Common Stock held by Morgan Stanley Venture Investors, L.P.
("MSVI") and 78,713 shares of Common Stock held by Morgan Stanley Venture
Capital Fund II, C.V. ("MSCV"). The managing general partner of the
general partner of Morgan Stanley Venture Capital Fund II, L.P., MSVI and
MSCV is Morgan Stanley Venture Capital II, Inc., a wholly owned
subsidiary of Morgan Stanley Group Inc. Mr. Husain serves as a Director
of the Company as a nominee of Morgan Stanley Venture Capital Fund II,
L.P., MSVI and MSCV. The address of each of Morgan Stanley Venture
Capital Fund II, L.P., MSVI and MSCV is 1221 Avenue of the Americas, New
York, New York 10020.
(16) The address of Duncan-Hurst Capital Management Inc. is 4365 Executive
Drive, Suite 1520, San Diego, California 92121.
40
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares of
Common Stock, par value $.01 per share, and 1,000,000 shares of Preferred
Stock, par value $.01 per share. As of July 1, 1996, there were 7,519,581
shares of Common Stock outstanding, held of record by 81 stockholders, and no
shares of Preferred Stock were outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share for the election
of directors and all other matters submitted for stockholder vote, except
matters submitted to the vote of another class or series of shares. Holders of
Common Stock are not entitled to cumulative voting rights. Therefore, the
holders of a majority of the shares voting for the election of directors can
elect all of the directors if they choose to do so. The holders of Common Stock
are entitled to dividends in such amounts and at such times, if any, as may be
declared by the Board of Directors out of funds legally available therefor. The
Company has not paid any dividends on its Common Stock and does not anticipate
paying any cash dividends on such stock in the foreseeable future. Upon
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all net assets available for
distribution to stockholders after payments to creditors. The Common Stock is
not redeemable and has no preemptive or conversion rights. See "Dividend
Policy."
The rights of the holders of Common Stock are subject to the rights of the
holders of any Preferred Stock which may, in the future, be issued. All
outstanding shares of Common Stock are, and the shares of Common Stock to be
sold by the Company in this offering when issued will be, duly authorized,
validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes 1,000,000 shares of
Preferred Stock. The Board of Directors has the authority to issue the
Preferred Stock in one or more series and to fix the price, rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series, without further vote
or action by the stockholders. The issuance of Preferred Stock may have the
effect of delaying, deferring or preventing a change in control of the Company
without further action by the stockholders and may adversely affect the voting
and other rights of the holders of Common Stock. The issuance of Preferred
Stock with voting and conversion rights may adversely affect the voting power
of the holders of Common Stock, including the loss of voting control to others.
Upon consummation of this offering, no shares of Preferred Stock will be
outstanding. The Company has no present intention to issue shares of Preferred
Stock.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BY-LAWS
AND DELAWARE LAW
Certificate of Incorporation and By-Laws. The Company's Certificate of
Incorporation provides that the Board of Directors will be divided into three
classes of directors, each class constituting approximately one-third of the
total number of directors and with the classes serving staggered three-year
terms. In addition, the Certificate of Incorporation provides that all
stockholder action must be effected at a duly called meeting and not by a
consent in writing. The By-Laws provide that the Company's stockholders may
call a special meeting of stockholders only upon a request of stockholders
owning at least 50% of the Company's capital stock. These provisions of the
Certificate of Incorporation and By-Laws could discourage potential acquisition
proposals and could delay or prevent a change in control of the Company. These
provisions are intended to enhance the likelihood of continuity and stability
in the composition of the Board of Directors and in the policies formulated by
the Board of Directors and to discourage certain types of transactions that may
involve an actual or threatened change of control of the Company. These
provisions are designed to reduce the vulnerability of
41
<PAGE>
the Company to an unsolicited acquisition proposal. The provisions also are
intended to discourage certain tactics that may be used in proxy fights.
However, such provisions could have the effect of discouraging others from
making tender offers for the Company's shares and, as a consequence, they also
may inhibit fluctuations in the market price of the Company's shares that could
result from actual or rumored takeover attempts. Such provisions also may have
the effect of preventing changes in the management of the Company. See "Risk
Factors--Effect of Certain Charter Provisions; Antitakeover Effects of
Certificate of Incorporation, By-Laws and Delaware Law."
Delaware Takeover Statute. The Company is subject to Section 203 of the
Delaware General Corporation Law ("Section 203"), which, subject to certain
exceptions, prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years
following the date that such stockholder became an interested stockholder,
unless: (i) prior to such date, the board of directors of the corporation
approved either the business combination or the transaction that resulted in
the stockholder becoming an interested stockholder; (ii) upon consummation of
the transaction that resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced, excluding
for purposes of determining the number of shares outstanding those shares owned
(a) by persons who are directors and also officers and (b) by employee stock
plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer; or (iii) on or subsequent to such date, the business
combination is approved by the board of directors and authorized at an annual
or special meeting of the stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that is
not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder, (ii)
any sale, transfer, pledge or other disposition of 10% or more of the assets of
the corporation involving the interested stockholder, (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder, (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Limitation of Liability. As permitted by the Delaware General Corporation
Law, the Company's Certificate provides that directors of the Company shall not
be personally liable for monetary damages to the Company for certain breaches
of their fiduciary duty as directors, unless they violated their duty of
loyalty to the Company or its stockholders, acted in bad faith, knowingly or
intentionally violated the law, authorized illegal dividends or redemptions, or
derived an improper personal benefit from their action as directors. This
provision would have no effect on the availability of equitable remedies or
nonmonetary relief, such as an injunction or rescission for breach of the duty
of care. In addition, the provision applies only to claims against a director
arising out of his or her role as a director and not in any other capacity
(such as an officer or employee of the Company). Further, liability of a
director for violations of the federal securities laws will not be limited by
this provision. Directors will, however, no longer be liable for monetary
damages arising from decisions involving violations of the duty of care which
could be deemed grossly negligent.
Indemnification. The Certificate provides that directors and officers of the
Company shall be indemnified by the Company to the fullest extent authorized by
Delaware law, as it now exists or may in the future be amended, against all
expenses and liabilities reasonably incurred in connection with service for or
on behalf of the Company. The Certificate also authorizes the Company to enter
into one or more agreements with any
42
<PAGE>
person which provide for indemnification greater or different from that
provided in the Certificate. The Company has entered into indemnification
agreements with all current members of the Board of Directors.
REGISTRATION RIGHTS
Holders of 329,684 shares of Common Stock (excluding shares being sold in
this offering) have certain demand and piggyback registration rights with
respect to the registration under the Securities Act of shares of Common Stock
("Registrable Shares") held by them from time to time. Certain holders of the
Registrable Shares are Directors and 5% or greater beneficial stockholders of
the Company. See "Certain Transactions." The holders of not less than 25% of
the Registrable Shares may request that the Company register all or part of
their Registrable Shares under the Securities Act. In addition, if the Company
proposes to register any of its securities under the Securities Act for its
own account, holders of Registrable Shares may require the Company to include
all or a portion of their Registrable Shares in the registration, provided,
among other conditions, that the managing underwriter (if any) of any such
offering has the right, subject to certain conditions, to limit the number of
Registrable Shares included in the registration. In general, all fees, costs
and expenses of such registrations (other than underwriting commissions,
dealer's fees, brokers' fees and applicable concessions) will be borne by the
Company. The rights of holders of Registrable Shares to demand or participate
in such registrations terminate on the earlier of (i) the date all Registrable
Shares are registered under the Securities Act and disposed of in accordance
with the registration statement covering them, or (ii) the date all
Registrable Shares are sold or transferred in accordance with the requirements
of Rule 144.
RECAPITALIZATION
In October 1995, the Company reincorporated in the State of Delaware and
became a holding company with a wholly owned operating subsidiary (the
"Recapitalization"). The Recapitalization was accomplished in two steps.
First, the Company merged with a wholly owned Delaware subsidiary, with such
subsidiary being the surviving entity. Second, the Company became a holding
company by transferring substantially all of its assets and liabilities to a
new wholly owned Illinois subsidiary named "Enterprise Systems, Inc." See
"Risk Factors--Holding Company Structure."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Harris Trust and
Savings Bank, Chicago, Illinois.
43
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 8,528,206 shares of
Common Stock outstanding (or 8,786,956 shares if the Underwriters' over-
allotment option is exercised in full), assuming no exercise of options after
July 1, 1996. Substantially all of these shares will be freely tradeable
without restriction under the Securities Act or may currently be sold in
accordance with Rule 144 under the Securities Act ("Rule 144"). In addition,
the Company has registered on a registration statement on Form S-8 a total of
1,114,846 shares of Common Stock reserved for issuance under the Company's
Long-Term Plan, of which options for 290,507 shares have been exercised as of
July 1, 1996 or will be exercised by Selling Stockholders in connection with
this offering. The remaining 824,339 shares, when and if issued, would be
freely tradeable (unless acquired by an affiliate of the Company, in which
case they would be subject to volume and other limitations under Rule 144).
The Directors, executive officers and the Selling Stockholders beneficially
holding an aggregate of 2,820,884 shares of Common Stock as of July 1, 1996
(excluding shares offered hereby), have entered into lock-up agreements with
the Underwriters pursuant to which such stockholders have agreed not to sell
or otherwise dispose of any shares of Common Stock for a period of 90 days
after the date of this Prospectus without the prior written consent of
Robertson, Stephens & Company. Upon expiration of the lock-up period, these
shares will be eligible for immediate sale, subject in certain cases to volume
and other limitations under Rule 144. See "Underwriting."
Generally, shares of Common Stock that have not been registered under the
Securities Act or that are held by affiliates of the Company (whether or not
registered) are deemed "restricted" securities under Rule 144. In general,
under Rule 144 as currently in effect, a person (or persons whose shares are
aggregated) who has beneficially owned "restricted" shares for at least two
years, including a person who may be deemed an affiliate of the Company, is
entitled to sell within any three-month period a number of shares of Common
Stock that does not exceed the greater of 1% of the then outstanding shares of
Common Stock of the Company (85,157 shares after giving effect to this
offering) or the average weekly trading volume of the Common Stock as reported
through the Nasdaq National Market during the four calendar weeks preceding
such sale. Sales under Rule 144 are also subject to certain restrictions
relating to manner of sale, notice and the availability of current public
information about the Company. In addition, under Rule 144(k) of the
Securities Act, a person who is not an affiliate of the Company at any time
within 90 days preceding a sale, and who has beneficially owned shares for at
least three years, would be entitled to sell such shares immediately following
this offering without regard to the volume limitations, manner of sale
provisions or notice or other requirements of Rule 144. The Commission has
proposed to amend the holding period required by Rule 144 to permit sales of
"restricted" securities after one year rather than two years (and two years
rather than three years for "non-affiliates" under Rule 144(k)).
No predictions can be made of the effect, if any, that shares eligible for
market sale will have on the market price of Common Stock prevailing from time
to time. Nevertheless, sales of substantial amounts of shares of Common Stock
in the public market could adversely affect the market price of the Common
Stock. See "Risk Factors--Shares Eligible for Future Sale."
44
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), acting through their
representatives, Robertson, Stephens & Company LLC, Smith Barney Inc. and
Wessels, Arnold & Henderson, L.L.C. (the "Representatives"), have severally
agreed with the Company and the Selling Stockholders, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company and the
Selling Stockholders the respective number of shares of Common Stock set forth
opposite their names below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Robertson, Stephens & Company LLC...............................
Smith Barney Inc................................................
Wessels, Arnold & Henderson, L.L.C..............................
---------
Total....................................................... 1,725,000
=========
</TABLE>
The nature of the Underwriters' obligation under the Underwriting Agreement
is such that all shares of Common Stock being offered, excluding shares
covered by the over-allotment option granted to the Underwriters, must be
purchased if any shares of Common Stock are purchased.
The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock to the public at the price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession of not more
than $ per share, of which $ may be reallowed to other dealers. After the
this offering, the price, concession and reallowance to dealers may be reduced
by the Representatives. No such reduction shall change the amount of proceeds
to be received by the Company or the Selling Stockholders as set forth on the
cover page of the Prospectus.
The Company granted to the Underwriters an option, exercisable during the
30-day period after the date of this Prospectus, to purchase up to 258,750
additional shares of Common Stock to cover over-allotments, if any, at the
same price per share that the Company and the Selling Stockholders will
receive for the 1,725,000 shares that the Underwriters have agreed to
purchase. To the extent that the Underwriters exercise such option, each of
the Underwriters will have made a firm commitment to purchase approximately
the same percentage of such additional shares that the number of shares of
Common Stock to be purchased by it shown in the above table represents as a
percentage of the 1,725,000 offered hereby. If purchased, such additional
shares will be sold by the Underwriters on the same terms as those on which
the 1,725,000 shares are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act.
The Company, its Directors, executive officers and the Selling Stockholders
have agreed that, subject to certain limited exceptions, they will not, for a
period of 90 days after the date of this Prospectus, sell, offer to sell,
contract to sell or otherwise dispose of any of their shares of Common Stock
(except for sales described in or contemplated by this Prospectus) or other
securities of the Company without the prior written consent of Robertson,
Stephens & Company, except that the Company may, without such consent, grant
options and issue shares of Common Stock under the Long-Term Plan.
The Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
45
<PAGE>
The rules of the Commission generally prohibit the Underwriters and other
members of the selling group, if any, from making a market in the Common Stock
during a "cooling-off" period immediately preceding the commencement of sales
in this offering. The Commission has, however, adopted exemptions from these
rules that permit passive market making under certain conditions. These rules
permit an Underwriter or other members of the selling group, if any, to
continue to make a market in the Common Stock subject to the condition, among
others, that its bid not exceed the highest bid by a market maker not
connected with the offering and that its net purchases on any one trading day
not exceed prescribed limits. Pursuant to these exemptions, certain
Underwriters and other members of the selling group, if any, may engage in
passive market making in the Common Stock during the cooling-off period.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Sachnoff & Weaver, Ltd.,
Chicago, Illinois. Certain legal matters in connection with the offering will
be passed upon for the Underwriters by Alston & Bird, Atlanta, Georgia.
EXPERTS
The Consolidated Financial Statements and Schedule for the Company as of
December 31, 1994 and 1995, and for each of the years in the three-year period
ended December 31, 1995, have been included herein in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of such firm as experts in
accounting and auditing.
The financial statements of the Matkon Product Line of Continental Health
Systems, Inc. as of November 30, 1994 and 1995, and for the years ended
November 30, 1994 and 1995, have been included herein in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act, with respect to the Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is
made to the Registration Statement, including the exhibits and schedules
thereto. Statements contained in this Prospectus as to the contents of any
contract, agreement or any other document referred to herein are not
necessarily complete; with respect to each such contract, agreement or
document filed as an exhibit to the Registration Statement, reference is made
to such exhibit for a more complete description of the matters involved, and
each such statement shall be deemed qualified in its entirety by such
reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the Commission's principal office
at 450 Fifth Street, N.W., Washington, D.C. 20549 and copies of them or any
part thereof may be obtained from such office, upon payment of the fees
prescribed by the Commission. The Registration Statement, including the
exhibits and schedules thereto, is also available on the Commission's Web site
at http://www.sec.gov.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy material and other
information concerning the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 or at its regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. Copies of reports, proxy and information
statements and other information are available on the Commission's Web site at
http://www.sec.gov.
46
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ENTERPRISE SYSTEMS, INC.
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of December 31, 1994, 1995 and June 30,
1996 (unaudited)........................................................ F-3
Consolidated Statements of Operations for the years ended December 31,
1993, 1994 and 1995 and for the six months ended June 30, 1995 and 1996
(unaudited)............................................................. F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1993, 1994 and 1995 and for the six months ended June 30,
1995 and 1996 (unaudited)............................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995 and for the six months ended June 30, 1995 and 1996
(unaudited)............................................................. F-6
Notes to Consolidated Financial Statements............................... F-7
MATKON PRODUCT LINE OF CONTINENTAL HEALTH SYSTEMS, INC.
Independent Auditors' Report............................................. F-14
Statements of Assets to be Acquired and Liabilities to be Assumed
November 30, 1994 and 1995 and May 31, 1996 (unaudited)................. F-15
Statements of Revenues and Expenses for the years ended November 30, 1994
and 1995 and for the six months ended May 31, 1995 and 1996 (unaudited). F-16
Statements of Cash Flows for the years ended November 30, 1994 and 1995
and for the six months ended May 31, 1995 and 1996 (unaudited).......... F-17
Notes to Financial Statements............................................ F-18
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Enterprise Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Enterprise
Systems, Inc. and subsidiary (the "Company") as of December 31, 1994 and 1995,
and the related consolidated statements of operations, stockholders' equity
and cash flows for each of the years in the three-year period ended December
31, 1995. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Enterprise
Systems, Inc. and subsidiary as of December 31, 1994 and 1995, and the results
of their operations and their cash flows for each of the years in the three-
year period ended December 31, 1995 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
February 12, 1996
F-2
<PAGE>
ENTERPRISE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
ASSETS 1994 1995 1996
------ ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets
Cash and cash equivalents............................. $ 1,588 $11,403 $ 2,601
Short-term investment securities...................... -- 9,220 2,122
Receivables, less allowance for doubtful accounts of
$302, $356 and $825.................................. 7,652 14,321 15,814
Refundable and prepaid income taxes................... 109 547 1,605
Deferred income taxes................................. 1,509 777 2,834
Prepaid commissions................................... 344 1,344 1,591
Other current assets.................................. 575 955 1,700
------- ------- -------
Total current assets................................ 11,777 38,567 28,267
------- ------- -------
Investment securities................................... -- 4,893 4,815
Property and equipment
Computer equipment.................................... 4,800 6,242 7,910
Furniture and fixtures................................ 1,217 897 971
Leasehold improvements................................ 384 499 564
------- ------- -------
Total property and equipment........................ 6,401 7,638 9,445
Less accumulated depreciation and amortization.... 3,346 4,071 4,999
------- ------- -------
3,055 3,567 4,446
------- ------- -------
Purchased and developed software, net of accumulated
amortization........................................... 874 1,498 3,947
Excess of cost over net assets acquired................. -- -- 569
Other assets............................................ 46 401 3,509
------- ------- -------
$15,752 $48,926 $45,553
======= ======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities
Notes payable......................................... $ 1,700 $ -- $ --
Current portion of long-term debt..................... 291 -- --
Accounts payable...................................... 1,116 1,285 1,222
Accrued liabilities................................... 929 2,240 3,394
Deferred revenue...................................... 2,817 4,674 3,224
------- ------- -------
Total current liabilities........................... 6,853 8,199 7,840
------- ------- -------
Deferred income taxes................................... 162 321 729
------- ------- -------
Stockholders' equity
Preferred stock, $.01 par value; authorized 1,000,000
shares; none outstanding............................. -- -- --
Common stock, $.01 par value; authorized 30,000,000
shares; issued and outstanding 5,230,158, 7,357,033
and 7,519,581 shares................................. 52 74 75
Additional paid-in capital............................ 7,575 38,513 39,352
Retained earnings (accumulated deficit)............... 1,110 1,910 (2,367)
Deferred compensation................................. -- (91) (76)
------- ------- -------
Total stockholders' equity.......................... 8,737 40,406 36,984
------- ------- -------
$15,752 $48,926 $45,553
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ENTERPRISE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues
Software......................... $ 9,065 $11,762 $16,104 $ 6,988 $ 9,860
Services......................... 10,653 12,343 16,498 7,240 10,454
Hardware......................... 709 607 646 212 729
------- ------- ------- ------- -------
Total revenues................. 20,427 24,712 33,248 14,440 21,043
------- ------- ------- ------- -------
Operating costs and expenses
Software development............. 4,237 6,377 7,536 3,376 4,043
Service and support.............. 7,187 8,629 10,742 5,133 6,577
Hardware......................... 717 682 786 269 739
Sales and marketing.............. 4,455 5,984 8,832 4,249 5,507
Administration................... 2,545 2,878 3,887 1,831 3,114
Acquired in-process technology... -- -- -- -- 8,453
------- ------- ------- ------- -------
Total operating costs and
expenses...................... 19,141 24,550 31,783 14,858 28,433
------- ------- ------- ------- -------
Income (loss) from operations...... 1,286 162 1,465 (418) (7,390)
Interest income (expense), net..... (198) (114) 17 (81) 467
------- ------- ------- ------- -------
Income (loss) before income taxes.. 1,088 48 1,482 (499) (6,923)
Income taxes (benefit)............. 339 20 682 (139) (2,646)
------- ------- ------- ------- -------
Net income (loss).................. $ 749 $ 28 $ 800 $ (360) $(4,277)
======= ======= ======= ======= =======
Net income (loss) per share........ $ 0.15 $ 0.01 $ 0.13 $ (0.07) $ (0.57)
======= ======= ======= ======= =======
Weighted average common stock and
common
stock equivalent shares
outstanding....................... 4,886 5,383 6,279 5,525 7,459
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ENTERPRISE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND SIX MONTHS ENDED JUNE 30, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS COMPANY
-------------- PAID-IN (ACCUMULATED DEFERRED LOAN TO
SHARES AMOUNT CAPITAL DEFICIT) COMPENSATION ESOP TOTAL
------ ------ ---------- ------------ ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992. 4,411 $44 $ 2,950 $ 803 $ -- $(1,028) $ 2,769
Repurchase of common stock. (30) -- (20) (134) -- -- (154)
Issuance of common stock,
net....................... 273 3 1,147 -- -- -- 1,150
Net income................. -- -- -- 749 -- -- 749
Repayment of loan by ESOP.. -- -- -- -- -- 514 514
----- --- ------- ------- ----- ------- -------
Balance at December 31, 1993. 4,654 47 4,077 1,418 -- (514) 5,028
Repurchase of common stock. (67) (1) (45) (336) -- -- (382)
Issuance of common stock,
net....................... 643 6 3,543 -- -- -- 3,549
Net income................. -- -- -- 28 -- -- 28
Repayment of loan by ESOP.. -- -- -- -- -- 514 514
----- --- ------- ------- ----- ------- -------
Balance at December 31, 1994. 5,230 52 7,575 1,110 -- -- 8,737
Repurchase of common stock. (56) -- (530) -- -- -- (530)
Issuance of common stock,
net....................... 2,164 22 31,260 -- -- -- 31,282
Exercise of stock options.. 19 -- 93 -- -- -- 93
Net income................. -- -- -- 800 -- -- 800
Deferred compensation from
issuance of stock options. -- -- 115 -- (115) -- --
Amortization of deferred
compensation.............. -- -- -- -- 24 -- 24
----- --- ------- ------- ----- ------- -------
Balance at December 31, 1995. 7,357 74 38,513 1,910 (91) -- 40,406
Exercise of stock options
(unaudited)............... 163 1 839 -- -- -- 840
Net loss (unaudited)....... -- -- -- (4,277) -- -- (4,277)
Amortization of deferred
compensation (unaudited).. -- -- -- -- 15 -- 15
----- --- ------- ------- ----- ------- -------
Balance at June 30, 1996
(unaudited)................. 7,520 $75 $39,352 $(2,367) $ (76) $ -- $36,984
===== === ======= ======= ===== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ENTERPRISE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------- -----------------
1993 1994 1995 1995 1996
------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net income (loss)............. $ 749 $ 28 $ 800 $ (360) $ (4,277)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation................ 815 1,249 1,595 659 928
Amortization................ 19 125 242 100 249
Deferred income taxes....... (243) (336) 891 (217) (1,649)
Acquired in-process
technology................. -- -- -- -- 8,453
Changes in assets and
liabilities:
Receivables, net.......... (840) (741) (6,669) 872 (353)
Refundable and prepaid
income taxes............. (189) (109) (438) 54 (1,058)
Prepaid commissions and
other current assets..... (234) (478) (1,380) (379) (843)
Accounts payable.......... 21 647 169 (333) (63)
Accrued liabilities....... 339 18 1,311 415 (77)
Deferred revenue.......... 304 525 1,857 (1,111) (1,450)
Other, net................ 41 (2) (355) 1 (272)
------- ------- -------- ------- --------
Net cash provided by
(used in) operating
activities............. 782 926 (1,977) (299) (412)
------- ------- -------- ------- --------
Cash flows from investing
activities:
Payment for acquisition....... -- -- -- -- (13,892)
Maturities (purchases) of
investment securities........ -- -- (14,113) -- 7,176
Purchase of property and
equipment.................... (1,598) (2,142) (2,107) (753) (1,614)
Capitalized software
development.................. (355) (664) (842) (438) (900)
Other......................... (4) (18) -- -- --
------- ------- -------- ------- --------
Net cash used in
investing activities... (1,957) (2,824) (17,062) (1,191) (9,230)
------- ------- -------- ------- --------
Cash flows from financing
activities:
Proceeds from notes payable... 900 -- -- 1,300 --
Repayment of notes payable.... -- (1,000) (1,700) -- --
Repayment of loan by ESOP..... 514 514 -- -- --
Repayment of long-term debt... (999) (1,096) (291) (291) --
Proceeds from issuance of
common stock, net............ 1,150 3,549 31,282 -- --
Proceeds from exercise of
stock options................ -- -- 93 73 840
Repurchase of common stock.... (154) (382) (530) (101) --
------- ------- -------- ------- --------
Net cash provided by
financing activities... 1,411 1,585 28,854 981 840
------- ------- -------- ------- --------
Increase (decrease) in cash and
cash equivalents............... 236 (313) 9,815 (509) (8,802)
Cash and cash equivalents at
beginning of period............ 1,665 1,901 1,588 1,588 11,403
------- ------- -------- ------- --------
Cash and cash equivalents at end
of period...................... $ 1,901 $ 1,588 $ 11,403 $ 1,079 $ 2,601
======= ======= ======== ======= ========
Supplemental disclosures of cash
flow information:
Interest paid................. $ 267 $ 158 $ 236 $ 106 $ 13
======= ======= ======== ======= ========
Income taxes paid............. $ 734 $ 485 $ 250 $ 43 $ --
======= ======= ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ENTERPRISE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
(AMOUNTS AND DISCLOSURES APPLICABLE TO JUNE 30, 1995 AND JUNE 30, 1996 ARE
UNAUDITED.)
(1) DESCRIPTION OF BUSINESS
Enterprise Systems, Inc. develops, markets, installs and services an
integrated suite of application software products that assist healthcare
providers in managing their operations.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Enterprise
Systems, Inc. and its subsidiary (the "Company"). All intercompany accounts
and transactions have been eliminated in consolidation.
Revenue Recognition
Revenues from software licensing and installation fees are recognized in
accordance with Statement of Position 91-1, "Software Revenue Recognition."
After contract signing and software delivery, revenues are recognized as the
installation services are performed. Education and consulting revenues are
recognized as the related services are performed. Revenue from first year
maintenance fees implicit in new software licenses and revenue from separately
priced maintenance agreements are recognized ratably over the maintenance
periods. Services revenues include fees from software installation, ongoing
maintenance, education and consulting. Commissions are generally paid in the
month following contract signing and are recognized as the related revenue is
recognized.
Cash Equivalents and Investment Securities
Cash equivalents are comprised of certain highly liquid investments with
original maturities of less than three months. Investment securities consist
of U.S. Treasury notes and municipal bonds with original maturities generally
ranging from one to two years.
Investment securities are classified as held-to-maturity, as the Company has
the ability and intent to hold such securities until maturity. Held-to-
maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Premiums and discounts are
amortized or accreted over the life of the related security as an adjustment
to yield using the straight-line method, which approximates the effective
interest method. Interest income is recognized when earned.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based on the estimated useful lives, ranging from
three to five years, of the various classes of property. Amortization of
leasehold improvements is computed over the shorter of the lease term or
estimated useful life of the asset.
Income Taxes
Deferred income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the year in which
F-7
<PAGE>
ENTERPRISE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period of enactment.
Software Development
Software development costs are accounted for in accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed." Costs associated with the
planning and designing phase of software development, including coding and
testing activities necessary to establish technological feasibility, are
classified as software development and expensed as incurred. Once
technological feasibility has been established, additional costs incurred in
development, including coding, testing and documentation writing, are
capitalized until general release.
Amortization of developed software is provided on a product-by-product basis
over the estimated economic life of the software, generally four years, using
the straight-line method. Amortization commences when a product is available
for general release to customers. Unamortized software development costs
determined to be in excess of the net realizable value of a product are
expensed at the date of such determination.
Computation of Net Income (Loss) Per Share
Net income (loss) per share is based on the weighted average number of
shares outstanding and includes the dilutive effect of unexercised stock
options using the treasury stock method. Net loss per share is based on the
weighted average number of shares outstanding and does not include the effect
of unexercised stock options.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, options for common stock granted by the Company during the twelve months
immediately preceding the initial public offering (using the treasury stock
method and the mid-point of the then proposed public offering price) have been
included in the calculation of common and common equivalent shares as if they
were outstanding for all periods presented.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles necessarily requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Fair Value of Financial Instruments
The Company's financial instruments are valued at their carrying amounts
which are reasonable estimates of fair value due to the relatively short
period to maturity of the instruments.
Interim Financial Statements
The financial statements as of June 30, 1996 and for the six months ended
June 30, 1995 and 1996 are unaudited. In the opinion of management, the
unaudited financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the financial
position and results of operations for such periods. Results of operations for
interim periods are not necessarily indicative of results that will be
achieved for the entire year.
(3) INITIAL PUBLIC OFFERING
On October 25, 1995, the Company completed an initial public offering of its
common stock in which 1,800,000 shares were sold by the Company. On November
21, 1995, the Company's underwriters exercised their over-allotment option to
purchase an additional 363,750 shares of common stock. The sale of the
Company's common stock resulted in net proceeds of approximately $31,282,000.
F-8
<PAGE>
ENTERPRISE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) INVESTMENT SECURITIES
The amortized cost, gross unrealized holding gains (losses) and fair value
for investment securities at December 31, 1995 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Held-to-maturity:
Current......................... $ 9,220 $ 3 $ -- $ 9,223
Due after one year.............. 4,893 3 -- 4,896
------- ------ ----- -------
$14,113 $ 6 $ -- $14,119
======= ====== ===== =======
</TABLE>
At June 30, 1996, the unrealized holding gain was approximately $8,000
(unaudited).
The scheduled maturities for investment securities at December 31, 1995 were
as follows:
<TABLE>
<CAPTION>
LESS THAN 1-2
1 YEAR YEARS TOTAL
--------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury Notes.............................. $4,996 $ -- $ 4,996
Municipal Bonds.................................. 4,224 4,893 9,117
------ ------ -------
$9,220 $4,893 $14,113
====== ====== =======
</TABLE>
(5) RECEIVABLES
Receivables represent amounts billed and contracts receivable. Contracts
receivable represent revenues earned but not yet billed due to contractual
payment terms. A summary of receivables is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
--------------- -------------
1994 1995 (UNAUDITED)
------ ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Accounts receivable........................ $5,490 $ 9,457 $11,367
Contracts receivable....................... 2,464 5,220 5,272
------ ------- -------
7,954 14,677 16,639
Allowance for doubtful accounts............ (302) (356) (825)
------ ------- -------
$7,652 $14,321 $15,814
====== ======= =======
</TABLE>
(6) PURCHASED AND DEVELOPED SOFTWARE
Purchased and developed software consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
-------------- -------------
1994 1995 (UNAUDITED)
------ ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Purchased software.......................... $ -- $ -- $1,783
Software development........................ 1,019 1,860 2,760
------ ------ ------
1,019 1,860 4,543
Less accumulated amortization............... (145) (362) (596)
------ ------ ------
$ 874 $1,498 $3,947
====== ====== ======
</TABLE>
F-9
<PAGE>
ENTERPRISE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Amortization expense included in the consolidated statements of operations
and classified as software development amounts to:
<TABLE>
<CAPTION>
YEAR ENDED AMOUNT
---------- --------------
(IN THOUSANDS)
<S> <C>
December 31, 1993.......................................... $ 20
December 31, 1994.......................................... 125
December 31, 1995.......................................... 217
June 30, 1995 (unaudited).................................. 100
June 30, 1996 (unaudited).................................. 234
</TABLE>
(7) FINANCING ARRANGEMENTS
The Company has available an unsecured revolving credit line from a bank for
$18,000,000. The line is comprised of a $100,000 standby letter of credit and
a $17,900,000 revolving credit line. At December 31, 1995 and June 30, 1996,
there was outstanding $100,000 under the standby letter of credit. Borrowings
bear interest ranging from LIBOR plus 1.25% to LIBOR plus 1.75%. No borrowings
were outstanding under the revolving credit line at June 30, 1996.
The Company is required to comply with certain financial covenants under the
financing arrangements discussed above. At December 31, 1995 and June 30,
1996, the Company was in compliance with the loan covenants.
(8) INCOME TAXES
Income tax expense for the years ended December 31, 1993, 1994 and 1995 is
comprised of the following:
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal............................................ $ 522 $ 277 $(174)
State.............................................. 60 79 (35)
----- ----- -----
582 356 (209)
Deferred............................................. (243) (336) 891
----- ----- -----
$ 339 $ 20 $ 682
===== ===== =====
</TABLE>
The reconciliation of income taxes computed using the federal statutory rate
of 34% in 1993, 1994 and 1995 to the income tax provision is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes, at the federal income tax statutory
rate................................................. $370 $ 16 $504
State income taxes, net of federal tax benefit........ 40 52 87
Research and experimentation credits.................. (73) (18) --
Foreign tax credit.................................... (10) (17) (4)
Nondeductible expenses................................ 16 50 72
Other................................................. (4) (63) 23
---- ---- ----
$339 $ 20 $682
==== ==== ====
</TABLE>
F-10
<PAGE>
ENTERPRISE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Temporary differences which give rise to deferred tax assets and liabilities
in 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
------ ------
(IN
THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Deferred revenue......................................... $1,323 $1,152
Allowance for doubtful accounts.......................... 112 134
Other accrued liabilities................................ 108 44
Depreciation............................................. 98 169
Other.................................................... 26 43
------ ------
Total gross deferred tax assets........................ 1,667 1,542
Less valuation allowance............................... -- --
------ ------
Net deferred tax assets................................ 1,667 1,542
------ ------
Deferred tax liabilities:
Software development, net................................ 263 567
Prepaid commissions...................................... 57 519
------ ------
Total gross deferred tax liabilities................... 320 1,086
------ ------
Net deferred tax assets................................ $1,347 $ 456
====== ======
</TABLE>
The Company believes its history of profitability and taxable income and its
utilization of tax planning sufficiently supports the value of the deferred
tax assets. Accordingly, the Company has not recorded a valuation allowance as
it is more likely than not that all deferred tax assets will be recovered.
(9) COMMITMENTS
The Company leases office space under long-term lease agreements expiring
through the year 2001 with a renewal option through 2006. Future minimum
rental payments under noncancelable long-term operating leases are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------------
(IN THOUSANDS)
<S> <C>
1996....................................................... $ 644
1997....................................................... 662
1998....................................................... 681
1999....................................................... 701
2000 and after............................................. 1,463
------
$4,151
======
</TABLE>
Rental expense included in the consolidated statements of operations
amounted to:
<TABLE>
<CAPTION>
YEAR ENDED AMOUNT
---------- --------------
(IN THOUSANDS)
<S> <C>
December 31, 1993.......................................... $663
December 31, 1994.......................................... 664
December 31, 1995.......................................... 880
June 30, 1995 (unaudited).................................. 522
June 30, 1996 (unaudited).................................. 547
</TABLE>
F-11
<PAGE>
ENTERPRISE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(10) STOCK OPTIONS
In 1993, the Company adopted a stock option plan under which certain
employees and nonemployee directors may be granted the right to purchase
shares of common stock. In October 1995, this stock option plan was amended to
create the Company's Long-Term Incentive Compensation Plan. Stock options vest
over periods ranging from three to five years. Stock options expire ten years
from the date granted. At December 31, 1995 and June 30, 1996, there were
128,416 and 103,549 shares, respectively, reserved for future grants.
In June 1995, stock options were granted to purchase 55,000 shares of the
Company's common stock at an exercise price of $5.93 per share. Deferred
compensation has been recorded representing the difference between the fair
market value of the options at the date of grant and the exercise price.
Compensation expense representing the amortization of the deferred
compensation is recognized over the vesting period of the stock options.
Stock option transactions from January 1, 1994 to June 30, 1996 relating to
the stock option plan are summarized as follows:
<TABLE>
<CAPTION>
SHARES PRICE
-------- ---------------
<S> <C> <C>
Outstanding on January 1, 1994................. 370,000 $ 4.57
Granted...................................... 289,846 5.60 to 5.93
Canceled..................................... (30,000) 4.57 to 5.60
--------
Outstanding on December 31, 1994............... 629,846 4.57 to 5.93
Granted...................................... 398,250 5.93 to 25.00
Exercised.................................... (19,334) 4.57 to 5.93
Canceled..................................... (41,666) 4.57 to 5.93
--------
Outstanding on December 31, 1995............... 967,096 4.57 to 25.00
Granted...................................... 29,500 26.50 to 38.50
Exercised.................................... (162,548) 4.57 to 5.93
Canceled..................................... (4,633) 5.93 to 25.00
--------
Outstanding on June 30, 1996 (unaudited)....... 829,415 $ 4.57 to 38.50
========
Exercisable on June 30, 1996 (unaudited)....... 328,079
========
</TABLE>
(11) EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP")
Subsequent to the Company's initial public offering in 1995, the ESOP was
combined into the Company's 401(k) retirement plan and all account balances
from the ESOP were transferred to the Company's 401(k) plan. The Company's
ESOP covers certain employees with more than one year of service. The
Company's final contribution to the ESOP was $543,000 in 1994.
(12) INTEREST
Interest income (expense), net for the years ended December 31, 1993, 1994
and 1995 is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED,
JUNE 30,
-------------------
1993 1994 1995 1995 1996
------ ----- ----- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest income...................... $ 62 $ 56 $ 269 $ 38 $ 480
Interest expense..................... (260) (170) (252) (119) (13)
------ ----- ----- --------- --------
$(198) $(114) $ 17 $ (81) $ 467
====== ===== ===== ========= ========
</TABLE>
F-12
<PAGE>
ENTERPRISE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(13) BUSINESS SEGMENT INFORMATION
The Company operates in one industry segment. The Company markets its
products in the United States and in Canada. No customer accounted for 5% or
more of revenue for the years presented.
(14) SUBSEQUENT EVENTS (UNAUDITED)
On January 2, 1996, the Company entered into a distribution agreement to
distribute, install and support a staff scheduling system. The agreement
provides the Company with exclusive territorial rights to the United States
for a term of two years. The Company's minimum royalty commitment over the
term of the agreement is approximately $1,475,000.
On March 22, 1996, the Company entered into a license agreement with
FlexiInternational Software, Inc. ("FLEXI") that allows the Company to
incorporate the FLEXI general ledger and accounts payable applications into
the Company's products for distribution in the United States healthcare
market. The Company has an exclusive right to sell the FLEXI applications in
the United States upon meeting certain sales levels.
On May 28, 1996, the Company purchased certain net assets of the materials
management division of Continental Healthcare Systems, Inc. for approximately
$13.9 million. The acquisition was accounted for under the purchase method.
Accordingly, the purchase price has been allocated to identifiable tangible
and intangible assets acquired and liabilities assumed based on their
estimated fair values. Approximately $8.4 million of the purchase price was
allocated to acquired in-process technology which has been charged to
operations in the consolidated statement of operations for the quarter ended
June 30, 1996. Such allocation is subject to change and is not necessarily
indicative of the ultimate purchase price allocation.
F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Boards of Directors
Continental Health Systems, Inc.
and Enterprise Systems, Inc.:
We have audited the accompanying statements of assets to be acquired and
liabilities to be assumed as of November 30, 1994 and 1995 and the statements
of revenues and expenses and cash flows for the years ended November 30, 1994
and 1995 of the Matkon Product Line of Continental Health Systems, Inc.
(Continental). These financial statements are the responsibility of
Continental's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in notes 1(a) and 7 to the financial statements, on May 28,
1996 Continental sold certain assets and liabilities of the Matkon Product
Line of Continental to Enterprise Systems, Inc.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets to be acquired and liabilities to be
assumed as of November 30, 1994 and 1995 and revenues and expenses and cash
flows for the years ended November 30, 1994 and 1995, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Kansas City, Missouri
July 10, 1996
F-14
<PAGE>
MATKON PRODUCT LINE OF
CONTINENTAL HEALTH SYSTEMS, INC.
STATEMENTS OF ASSETS TO BE ACQUIRED AND LIABILITIES TO BE ASSUMED
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NOVEMBER 30,
------------- MAY 31,
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Receivables, less allowance for doubtful accounts
of $382, $461,
and $420.......................................... $3,345 $4,677 $7,610
Inventory.......................................... 247 33 --
------ ------ ------
Total current assets............................. 3,592 4,710 7,610
Property and equipment, net........................ 283 210 192
Software development, net of accumulated
amortization...................................... 1,068 1,735 1,995
Noncurrent receivables............................. 995 470 107
------ ------ ------
Total assets..................................... 5,938 7,125 9,904
Current liabilities:
Accounts payable and accrued expenses.............. 206 288 419
Deferred revenue................................... 1,174 1,491 3,302
------ ------ ------
Total current liabilities........................ 1,380 1,779 3,721
Commitments (note 6)
------ ------ ------
Excess of assets to be acquired over liabilities
to be assumed................................... $4,558 $5,346 $6,183
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-15
<PAGE>
MATKON PRODUCT LINE OF
CONTINENTAL HEALTH SYSTEMS, INC.
STATEMENTS OF REVENUES AND EXPENSES
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS SIX MONTHS
ENDED ENDED
NOVEMBER 30, MAY 31,
-------------- --------------
1994 1995 1995 1996
------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Software...................................... $1,094 $1,497 $ 501 $ 795
Services...................................... 3,872 3,810 1,772 1,936
Hardware...................................... 2,052 1,782 772 748
------ ------ ------ ------
Total revenue............................... 7,018 7,089 3,045 3,479
------ ------ ------ ------
Costs and expenses (note 5):
Hardware...................................... 2,092 1,885 811 490
Software development.......................... 1,087 937 498 1,077
Service and support........................... 2,293 2,152 1,128 846
Sales and marketing........................... 1,129 1,246 527 717
Administration................................ 646 362 197 108
------ ------ ------ ------
Total costs and expenses.................... 7,247 6,582 3,161 3,238
------ ------ ------ ------
Income (loss) from operations............... (229) 507 (116) 241
Other income (expense), net..................... (13) (10) (5) 45
------ ------ ------ ------
Excess (deficiency) of revenues over (under)
expenses................................... $ (242) $ 497 $ (121) $ 286
====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE>
MATKON PRODUCT LINE OF
CONTINENTAL HEALTH SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS SIX MONTHS
ENDED ENDED
NOVEMBER 30, MAY 31,
--------------- --------------
1994 1995 1995 1996
------- ------ ----- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Excess (deficiency) of revenues over (under)
expenses................................... $ (242) $ 497 $(121) $ 286
Adjustments to reconcile expenses in excess
of revenues to net cash used by operating
activities:
Depreciation and amortization............. 389 340 176 162
Loss (gain) on sale of property and
equipment................................ 4 (1) -- --
Changes in assets and liabilities:
Receivables, net........................ 1,800 (803) (325) (2,570)
Inventories............................. (41) 213 87 33
Accounts payable........................ 288 (82) 44 131
Deferred revenues....................... (486) (309) 94 1,811
------- ------ ----- -------
Net cash provided by (used in)
operating activities................. 1,712 (145) (45) (147)
------- ------ ----- -------
Cash flows from investing activities:
Purchase of property and equipment.......... (166) (149) (139) (34)
Proceeds from disposal of property and
equipment.................................. -- 145 -- --
Capitalized software development............ (503) (929) (334) (370)
------- ------ ----- -------
Net cash used in investing activities. (669) (933) (473) (404)
------- ------ ----- -------
Cash flow provided by (used in) investing
activities -- Contribution (return) of
capital from (to) Continental Health Systems,
Inc.......................................... (1,043) 1,078 518 551
------- ------ ----- -------
Change in cash................................ -- -- -- --
Cash at beginning of period................... -- -- -- --
------- ------ ----- -------
Cash at end of period......................... $ -- $ -- $ -- $ --
------- ------ ----- -------
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE>
MATKON PRODUCT LINE OF CONTINENTAL HEALTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1994 AND 1995
(AMOUNTS AND DISCLOSURES APPLICABLE TO MAY 31, 1995 AND MAY 31, 1996 ARE
UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
The Matkon product line (Matkon) of Continental Health Systems, Inc.
(Continental) designs, develops, markets, installs and services application
software products that assist health care providers in managing their
operations.
As more fully described in note 7, Continental has entered into an agreement
to sell assets and liabilities of the Matkon product line to Enterprise
Systems, Inc. (Enterprise).
(b) Basis of Presentation
Matkon's financial results have historically been reported in a combined
manner with the results of Continental. For purposes of this presentation, the
accompanying financial statements present only those assets and liabilities of
Matkon to be acquired by Enterprise as of November 30, 1994 and 1995. The
statements of revenues and expenses of Matkon for the years ended November 30,
1994 and 1995 include only the operating results of Matkon presented on a
stand-alone basis, excluding the impact, if any, on Continental's consolidated
income tax provision.
(c) Inventories
Inventories are valued at the lower of cost or market using the first-in,
first-out (FIFO) method.
(d) Property and Equipment
Property and Equipment are recorded at cost. Depreciation is calculated on
the straight-line method over the estimated useful lives of the assets which
range from three to five years. Leasehold improvements are amortized on the
straight-line method over the shorter of the lease term or estimated useful
life of the assets.
(e) Software Development Costs
Costs incurred internally in creating computer software products are
expensed until technological feasibility has been established upon completion
of a detail program design. Thereafter, all software development costs are
capitalized and subsequently reported at the lower of amortized cost or net
realizable value. Capitalized costs are amortized based on current and future
revenue for each product, with minimum annual amortization equal to the
straight-line amortization over the estimated economic life of the product.
Continental is amortizing capitalized costs on a straight-line basis over five
years.
(f) Revenue Recognition
Revenues from software licensing and installation fees are recognized in
accordance with Statement of Position 91-1, "Software Revenue Recognition."
After contract signing and software delivery, revenues are recognized as the
installation services are performed. Custom programming and consulting
revenues are recognized as the related services are performed. Revenue from
maintenance agreements is recognized ratably over the maintenance periods.
Service revenues include fees from software installation, ongoing maintenance,
custom programming and consulting.
(g) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles necessarily requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
F-18
<PAGE>
MATKON PRODUCT LINE OF CONTINENTAL HEALTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(h) Fair Value of Financial Instruments
Financial instruments consisting of current receivables and accounts payable
are carried at cost, which approximates fair value, as a result of the short-
term nature of the instruments. The fair value of the noncurrent receivables
is estimated to be $829,000 and $432,000 at November 30, 1994 and 1995,
respectively, based on Continental's estimated cost of capital.
(i) Interim Financial Statements
The financial statements as of May 31, 1996 and for the six months ended May
31, 1995 and 1996 are unaudited. In the opinion of management, the unaudited
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position and
results of operations for such periods. Results of operations for interim
periods are not necessarily indicative of results that will be achieved for
the entire year.
(2) PROPERTY AND EQUIPMENT
A summary of fixed assets follows as of November 30, 1995 and 1994:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Leasehold improvements.............................. $ 7 $ 89
Furniture, fixtures and equipment................... 411 274
Computer............................................ 455 447
------- -------
873 810
Less accumulated depreciation....................... 590 600
------- -------
$283 $210
======= =======
</TABLE>
Depreciation expense for the years ended November 30, 1994 and 1995 was
$114,812 and $77,461, respectively.
(3) RECEIVABLES
Receivables represent amounts billed and contracts receivable. Contracts
receivable represent revenues earned but not yet billed due to contractual
payment terms. A summary of current receivables is as follows:
<TABLE>
<CAPTION>
1994 1995
------ --------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable................................. $1,639 $ 1,398
Contracts receivable................................ 2,088 3,740
------ --------
3,727 5,138
Allowance for doubtful accounts..................... 382 461
------ --------
$3,345 $ 4,677
====== ========
</TABLE>
(4) SOFTWARE DEVELOPMENT
Capitalized software development costs consist of the following:
<TABLE>
<CAPTION>
1994 1995
------ ------
(IN
THOUSANDS)
<S> <C> <C>
Software development.................................. $2,204 $3,133
Less accumulated amortization......................... 1,135 1,398
------ ------
$1,069 $1,735
====== ======
</TABLE>
Amortization expense for the years ended November 30, 1994 and 1995 included
in the statements of revenues and expenses was $274,471 and $262,396,
respectively.
F-19
<PAGE>
MATKON PRODUCT LINE OF CONTINENTAL HEALTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) ALLOCATED COSTS
Matkon is one of the product lines offered by Continental. As such, certain
allocations of costs have been included in the accompanying statements of
revenues and expenses and are summarized as follows:
<TABLE>
<CAPTION>
1994 1995 BASIS FOR ALLOCATION
----- ----- -------------------------------
(IN
THOUSANDS)
<S> <C> <C> <C>
Software development:
Development administration. $338 $744 Number of employees
===== =====
Service and support:
Client service
administration............ $358 $267 Revenue
Night support.............. -- 63 Revenue
Training................... 22 30 Revenue
Hardware installation...... 171 179 Hardware revenue
Documentation.............. 141 158 Number of employees
----- -----
Total allocated service
and support costs....... $692 $ 697
===== =====
Sales and marketing:
Marketing administration... $ 66 $ 146 Sales to new customers
Sales administration....... 174 237 Sales to new customers/upgrades
----- -----
Total allocated sales and
marketing costs......... $240 $ 383
===== =====
Administration:
Corporate administration... $206 $ 170 Number of employees
Accounting................. 223 135 Number of employees
----- -----
Total allocated
administrative costs.... $429 $ 305
===== =====
</TABLE>
The allocated costs consist primarily of overhead expenses such as executive
and support staff salaries, benefits, utilities, depreciation and rent which
are shared among the various Continental product lines.
Management believes that the allocation methods used are reasonable and
result in the allocation of all appropriate expenses to the Matkon product
line.
(6) LEASE COMMITMENTS
Matkon is obligated under operating leases, principally for its offices.
Total rental expense for operating leases for the years ended November 30, 1994
and 1995 was approximately $215,000 and $212,000, respectively.
F-20
<PAGE>
MATKON PRODUCT LINE OF CONTINENTAL HEALTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
Future minimum lease payments under the operating leases are as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
1996...................... $125
1997...................... 90
----
$215
====
</TABLE>
(7) SALE OF MATKON PRODUCT LINE
On May 28, 1996, Continental entered into an agreement to sell certain assets
and liabilities of Matkon to Enterprise for approximately $13.9 million. In
accordance with the agreement, such assets and liabilities existing at the
closing date will be transferred to Enterprise. Substantially all contracts and
leases of Matkon will be assigned to Enterprise.
F-21
<PAGE>
LOGO
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by the Company
in connection with the sale of the Common Stock being registered hereby. All
the amounts shown are estimated, except the SEC registration fee and the NASD
filing fee.
<TABLE>
<S> <C>
SEC registration fee............................................ 15,391
NASD filing fee................................................. 4,964
Nasdaq National Market listing fee.............................. 17,500
Blue Sky fees and expenses...................................... 10,000
Printing and engraving expenses................................. 50,000
Legal fees and expenses......................................... 100,000
Auditors' accounting fees and expenses.......................... 50,000
Transfer Agent and Registrar fees............................... 5,000
Miscellaneous................................................... 47,145
--------
Total....................................................... $300,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Delaware corporation, subject to the applicable
indemnification provisions of the General Corporation Law of the State of
Delaware (the "DGCL"). Section 145 of the DGCL empowers a Delaware corporation
to indemnify, subject to the standards therein prescribed, any person in
connection with any action, suit or proceeding brought or threatened because
such person is or was a director, officer, employee or agent of the
corporation or was serving as such with respect to another corporation or
other entity at the request of such corporation.
In accordance with Section 102(b)(7) of the DGCL, Article XIII of the
Corporation's Certificate of Incorporation provides that "no director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director,
notwithstanding any provision of law imposing such liability except for
liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL, as the same exists or hereafter may be amended,
or (iv) for any transaction from which the director derived an improper
personal benefit. If the DGCL is amended to authorize the further elimination
or limitation of liability of directors, then the liability of a director of
the Corporation, in addition to the limitation on personal liability provided
herein, shall be limited to the fullest extent permitted by an amended DGCL.
Any repeal or modification of this Article XIII by the stockholders of the
Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification."
The Company's Certificate of Incorporation and By-Laws contain provisions
that require the Company to indemnify its directors and officers to the
fullest extent permitted by Delaware law.
The Company has entered into indemnification agreements with each of its
executive officers and directors in which the Company agrees to indemnify and
hold harmless the officer or director to the fullest extent permitted by
applicable law against any and all reasonable attorneys' fees and all other
reasonable expense, cost, liability and loss (including a mandatory obligation
by the Company to advance reimbursement of legal fees and expenses) paid or
reasonably incurred by such officer or director or on his or her behalf in
connection with any threatened, pending or completed action, suit or
proceeding, or any inquiry or
II-1
<PAGE>
investigation not initiated by the officer or director that he or she believes
in good faith might lead to a proceeding, inquiry or investigation (a
"Proceeding"), relating to the fact that the officer or director is or was a
director, officer, employee or agent of the Company, or is or was serving at
the request of the Company as a director, officer, employee, trustee, agent or
fiduciary of another corporation, partnership, joint venture, employee benefit
plan, trust or other enterprise, or by reason of any action or inaction by the
officer or director in such capacity. However, the Company's obligation to
indemnify the officer or director is subject to a determination by: (i) the
Company's Board of Directors, by vote of the majority of disinterested
directors; (ii) under certain circumstances, independent legal counsel
appointed by the Board of Directors in a written opinion; (iii) stockholders
of the Company; or (iv) a court of competent jurisdiction in a final,
nonappealable adjudication, that the officer or director acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Company and, with respect to any criminal Proceeding,
the officer or director acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Company, and the officer or director had no reasonable cause to believe that
his or her conduct was unlawful.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the Underwriters of the Company, its directors and executive officers, the
Selling Stockholders in the offering of the Common Stock registered hereby,
and each person, if any, who controls the Company or the Selling Stockholders,
for certain liabilities, including liabilities arising under the Securities
Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since July 1, 1993, the Company has issued the following securities that
were not registered under the Securities Act:
On March 31, 1994, Morgan Stanley Venture Capital Fund II, L.P. purchased
402,878 shares of Common Stock at $5.60 per share for an aggregate purchase
price of $2,256,116.80.
On March 31, 1994, Morgan Stanley Venture Capital Fund II, C.V. purchased
78,713 shares of Common Stock at $5.60 per share for an aggregate purchase
price of $440,792.80.
On March 31, 1994, Morgan Stanley Venture Investors, L.P. purchased
161,266 shares of Common Stock at $5.60 per share for an aggregate purchase
price of $903,089.60.
Between July 1, 1993 and January 1, 1996, the Company issued an aggregate of
24,334 shares of Common Stock to persons who were employees of the Company
upon exercise of stock options previously granted to such persons. The
exercise prices ranged from $4.57 to $5.93 per share.
No underwriters were engaged in connection with the foregoing sales of
securities. Such sales were made in reliance upon the exemption from
registration set forth in Section 4(2) of the Securities Act or Rule 701
promulgated thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NUMBER
--------------
<C> <S> <C>
1.1. Form of Underwriting Agreement by and among the *
Company, the Selling Stockholders and the Underwriters
3.1. Amended and Restated Certificate of Incorporation of (3)
Enterprise Systems, Inc.
3.2. Amended and Restated By-Laws of Enterprise Systems, (3)
Inc.
4.1. Specimen Common Stock Certificate (3)
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S> <C>
4.2. Shareholders' Agreement among the Company, Thomas R. (1)
Pirelli, CR Investments, Venrock Associates, Henry S.
Smith, Robert Noyce, Thomas R. Hutchison, Trustees of
Grinnell College, John Gildea, Berkeley Associates, and
Sidney Kahn dated June 9, 1983
4.3. Amended and Restated Registration Rights Agreement (1)
among CID Ventures, L.P., CID Equity Capital, L.P.,
Morgan Stanley Venture Investors, L.P., Morgan Stanley
Venture Capital Fund II, L.P., Morgan Stanley Venture
Capital Fund II, C.V., Harry Pomerantz, Mid-America
Investment Co. and the Company dated March 31, 1994
5.1. Opinion of Sachnoff & Weaver, Ltd. *
10.1. Investment Agreement among CID Ventures, L.P., CID (1)
Equity Capital, L.P. and the Company dated April 30,
1993
10.2. Investment Agreement among Morgan Stanley Venture (1)
Investors, L.P., Morgan Stanley Venture Capital Fund
II, L.P., Morgan Stanley Venture Capital Fund II, C.V.,
and the Company dated March 31, 1994
10.4. Employment Agreement between the Company and Thomas R. (2)
Pirelli
10.5. Employment Agreement between the Company and Glen E. (2)
Tullman
10.6. Employment Agreement between the Company and David B. (2)
Mullen
10.7. Employment Agreement between the Company and Joseph E. (2)
Carey
10.8. Employment Agreement between the Company and Steven M. (2)
Katz
10.9. Employment Agreement between the Company and David A. (2)
Carlson
10.10. Employment Agreement between the Company and Stanley A. (2)
Crane
10.12. Enterprise Systems, Inc. Long-Term Incentive (3)
Compensation Plan
10.13. Enterprise Systems, Inc. 401(k), as amended (3)
10.14. Office Lease dated May 17, 1991 between the Company and (1)
LaSalle National Trust, N.A. as successor Trustee under
Trust No. 104254 for the premises located at Building
500, 1400 South Wolf Road, Wheeling, Illinois
10.15. Office Lease Agreement among the Company (1)
Gateway/Wheeling Limited Partnership and Comerica Bank-
Illinois, as Trustee under Trust Agreement dated
December 20, 1993 and known as Trust Number 11866 dated
April 11, 1994, as amended
10.16. Form of Indemnification Agreement between the Company (3)
and Company directors
10.17. Agreement for Contribution, License and Issuance of (3)
Stock between Enterprise Systems, Inc., a Delaware
corporation, and Enterprise Systems, Inc., an Illinois
corporation, dated October 17, 1995
10.20 Severance Agreement between the Company and Thomas R. (5)
Pirelli dated January 9, 1996
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S> <C>
10.21 Distribution Agreement between the Company and Total (5)
Care Technologies, Inc. dated January 23, 1996
10.22 Loan Agreement between Enterprise Systems, Inc., an *
Illinois corporation and LaSalle National Bank dated
May 31, 1996
10.23 Guaranty of Enterprise Systems, Inc., a Delaware *
Corporation to LaSalle National Bank dated May 31, 1996
10.24 Asset Purchase Agreement among the Company, Continental ++
Healthcare Systems, Inc. and Information Handling
Services Group, Inc. dated May 28, 1996
10.25 Development, Technology and Software License Agreement ++
between the Company and FlexiInternational Software,
Inc. dated March 22, 1996
21.1. Subsidiaries of Registrant (3)
23.1. Report and Consent of KPMG Peat Marwick LLP
23.2 Consent of KPMG Peat Marwick LLP
23.3. Consent of Sachnoff & Weaver, Ltd. (included in Exhibit
5.1)
24.1 Power of Attorney (contained on signature page)
27.1 Financial Data Schedule
</TABLE>
- --------
*Filed herewith
++To be filed by amendment
(1) Incorporated by reference from the Registrant's Form S-1 Registration
Statement No. 33-96328 as filed with the SEC on August 30, 1995.
(2) Incorporated by reference from the Registrant's Amendment No. 1 to Form S-
1 Registration Statement No. 33-96328 as filed with the SEC on September
25, 1995.
(3) Incorporated by reference from the Registrant's Amendment No. 3 to Form S-
1 Registration Statement No. 33-96328 as filed with the SEC on October 4,
1995.
(4) Incorporated by reference from the Registrant's Amendment No. 4 to Form S-
1 Registration Statement No. 33-96328 as filed with the SEC on October 18,
1995.
(5) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the period ended December 31, 1995.
B. FINANCIAL STATEMENT SCHEDULE.
Schedule II--Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. If a claim for indemnification against such liability (other
than the payment by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
II-4
<PAGE>
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The Company hereby undertakes to provide to the Underwriters at the closings
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
COMPANY HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE VILLAGE OF WHEELING,
STATE OF ILLINOIS, ON JULY 25, 1996.
Enterprise Systems, Inc.
/s/ Glen E. Tullman
By: _________________________________
Glen E. Tullman
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS GLEN E. TULLMAN AND DAVID B. MULLEN, AND EACH
OF THEM SINGLY, AS HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS WITH FULL
POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND
STEAD, IN ANY AND ALL CAPACITIES TO SIGN THE REGISTRATION STATEMENT FILED
HEREWITH AND ANY OR ALL AMENDMENTS TO SAID REGISTRATION STATEMENT (INCLUDING
POST-EFFECTIVE AMENDMENTS AND REGISTRATION STATEMENTS FILED PURSUANT TO RULE
462(B) UNDER THE SECURITIES ACT OF 1933, AND ANY OR ALL AMENDMENTS THERETO),
AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN
CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION GRANTING
UNTO SAID ATTORNEYS-IN-FACT AND AGENTS THE FULL POWER AND AUTHORITY TO DO AND
PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND
ABOUT THE FOREGOING, AS FULL TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD
DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT
AND AGENTS OR ANY OF THEM, OR HIS SUBSTITUTE, MAY LAWFULLY DO OR CAUSE TO BE
DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON THE 25TH OF JULY 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Glen E. Tullman Chief Executive Officer, Director
___________________________________________ (Principal Executive Officer)
Glen E. Tullman
/s/ David B. Mullen Chief Financial Officer
___________________________________________ (Principal Financial and Accounting
David B. Mullen Officer)
/s/ Robert A. Compton Director
___________________________________________
Robert A. Compton
/s/ Bernard Goldstein Director
___________________________________________
Bernard Goldstein
/s/ M. Fazle Husain Director
___________________________________________
M. Fazle Husain
/s/ Thomas R. Hutchison Director
___________________________________________
Thomas R. Hutchison
/s/ Thomas R. Pirelli Director
___________________________________________
Thomas R. Pirelli
</TABLE>
II-6
<PAGE>
SCHEDULE II
ENTERPRISE SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
-----------------
CHARGED
BALANCE AT TO COSTS CHARGED BALANCE
ALLOWANCE FOR DOUBTFUL BEGINNING AND TO OTHER AT END
ACCOUNTS OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
- ---------------------- ---------- -------- -------- ---------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1995................... $302 $ 68 $-- $14 $356
Year ended December 31,
1994................... 232 148 -- 78 302
Year ended December 31,
1993................... 174 70 -- 12 232
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER
--------------
<C> <S> <C>
1.1. Form of Underwriting Agreement by and among the *
Company, the Selling Stockholders and the Underwriters
3.1. Amended and Restated Certificate of Incorporation of (3)
Enterprise Systems, Inc.
3.2. Amended and Restated By-Laws of Enterprise Systems, (3)
Inc.
4.1. Specimen Common Stock Certificate (3)
4.2. Shareholders' Agreement among the Company, Thomas R. (1)
Pirelli, CR Investments, Venrock Associates, Henry S.
Smith, Robert Noyce, Thomas R. Hutchison, Trustees of
Grinnell College, John Gildea, Berkeley Associates, and
Sidney Kahn dated June 9, 1983
4.3. Amended and Restated Registration Rights Agreement (1)
among CID Ventures, L.P., CID Equity Capital, L.P.,
Morgan Stanley Venture Investors, L.P., Morgan Stanley
Venture Capital Fund II, L.P., Morgan Stanley Venture
Capital Fund II, C.V., Harry Pomerantz, Mid-America
Investment Co. and the Company dated March 31, 1994
5.1. Opinion of Sachnoff & Weaver, Ltd. *
10.1. Investment Agreement among CID Ventures, L.P., CID (1)
Equity Capital, L.P. and the Company dated April 30,
1993
10.2. Investment Agreement among Morgan Stanley Venture (1)
Investors, L.P., Morgan Stanley Venture Capital Fund
II, L.P., Morgan Stanley Venture Capital Fund II, C.V.,
and the Company dated March 31, 1994
10.4. Employment Agreement between the Company and Thomas R. (2)
Pirelli
10.5. Employment Agreement between the Company and Glen E. (2)
Tullman
10.6. Employment Agreement between the Company and David B. (2)
Mullen
10.7. Employment Agreement between the Company and Joseph E. (2)
Carey
10.8. Employment Agreement between the Company and Steven M. (2)
Katz
10.9. Employment Agreement between the Company and David A. (2)
Carlson
10.10. Employment Agreement between the Company and Stanley A. (2)
Crane
10.12. Enterprise Systems, Inc. Long-Term Incentive (3)
Compensation Plan
10.13. Enterprise Systems, Inc. 401(k), as amended (3)
10.14. Office Lease dated May 17, 1991 between the Company and (1)
LaSalle National Trust, N.A. as successor Trustee under
Trust No. 104254 for the premises located at Building
500, 1400 South Wolf Road, Wheeling, Illinois
10.15. Office Lease Agreement among the Company (1)
Gateway/Wheeling Limited Partnership and Comerica Bank-
Illinois, as Trustee under Trust Agreement dated
December 20, 1993 and known as Trust Number 11866 dated
April 11, 1994, as amended
10.16. Form of Indemnification Agreement between the Company (3)
and Company directors
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
10.17. Agreement for Contribution, License and Issuance of (3)
Stock between Enterprise Systems, Inc., a Delaware
corporation, and Enterprise Systems, Inc., an Illinois
corporation, dated October 17, 1995
10.20 Severance Agreement between the Company and Thomas R. (5)
Pirelli dated January 9, 1996
10.21 Distribution Agreement between the Company and Total (5)
Care Technologies, Inc. dated January 23, 1996
10.22 Loan Agreement between Enterprise Systems, Inc., an *
Illinois corporation and LaSalle National Bank dated
May 31, 1996
10.23 Guaranty of Enterprise Systems, Inc., a Delaware *
Corporation to LaSalle National Bank dated May 31, 1996
10.24 Asset Purchase Agreement among the Company, Continental ++
Healthcare Systems, Inc. and Information Handling
Services Group, Inc. dated May 28, 1996
10.25 Development, Technology and Software License Agreement ++
between the Company and FlexiInternational Software,
Inc. dated March 22, 1996
21.1. Subsidiaries of Registrant (3)
23.1. Report and Consent of KPMG Peat Marwick LLP
23.2 Consent of KPMG Peat Marwick LLP
23.3. Consent of Sachnoff & Weaver, Ltd. (included in Exhibit
5.1)
24.1 Power of Attorney (contained on signature page)
27.1 Financial Data Schedule
</TABLE>
- --------
*Filed herewith
++To be filed by amendment
(1) Incorporated by reference from the Registrant's Form S-1 Registration
Statement No. 33-96328 as filed with the SEC on August 30, 1995.
(2) Incorporated by reference from the Registrant's Amendment No. 1 to Form S-
1 Registration Statement No. 33-96328 as filed with the SEC on September
25, 1995.
(3) Incorporated by reference from the Registrant's Amendment No. 3 to Form S-
1 Registration Statement No. 33-96328 as filed with the SEC on October 4,
1995.
(4) Incorporated by reference from the Registrant's Amendment No. 4 to Form S-
1 Registration Statement No. 33-96328 as filed with the SEC on October 18,
1995.
(5) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the period ended December 31, 1995.
<PAGE>
EXHIBIT (1.1)
1,725,000 SHARES/1/
ENTERPRISE SYSTEMS, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
___________, 1996
ROBERTSON, STEPHENS & COMPANY LLC
SMITH BARNEY INC.
WESSELS, ARNOLD & HENDERSON, L.L.C.
As Representatives of the several Underwriters
c/o Robertson, Stephens & Company LLC
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
Enterprise Systems, Inc., a Delaware corporation (the "Company"), and
certain stockholders of the Company named in Schedule B hereto (hereafter called
the "Selling Stockholders") address you as the Representatives of each of the
persons, firms and corporations listed in Schedule A hereto (herein collectively
called the "Underwriters") and hereby confirm their respective agreements with
the several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell
900,000 shares of its authorized and unissued Common Stock, $.01 par value
per share, to the several Underwriters. The Selling Stockholders, acting
severally and not jointly, propose to sell an aggregate of 825,000 shares of
the Company's authorized and outstanding Common Stock, $.01 par value per share,
to the several Underwriters. The 900,000 shares of Common Stock, $.01 par
value per share, of the Company to be sold by the Company are hereinafter called
the "Company Shares" and the 825,000 shares of Common Stock, $.01 par value
per share, to be sold by the Selling Stockholders are hereinafter called the
"Selling Stockholder Shares." The Company Shares and the Selling Stockholder
Shares are hereinafter collectively referred to as the "Firm Shares." The
Company also proposes to grant to the Underwriters an option to purchase up to
258,750 additional shares of the Company's Common Stock, $.01 par value per
share (the "Option Shares"), as provided in Section 7 hereof. As used in this
Agreement, the term "Shares" shall include the Firm Shares and the Option
Shares. All shares of Common Stock, $.01 par value per share, of the Company to
be outstanding after giving effect to the sales contemplated hereby, including
the Shares, are hereinafter referred to as "Common Stock."
- ---------------------------------
/1/ Plus an option to purchase up to 258,750 additional shares from the
Company to cover over-allotments.
<PAGE>
2. Representations, Warranties and Agreements of the Company and the
Selling Stockholders.
I. The Company represents and warrants to and agrees with each
Underwriter that:
(a) A registration statement on Form S-1 (File No. 333-_______) with
respect to the Shares, including a prospectus subject to completion, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the applicable rules and regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") under the Act and has been filed with the Commission; such
amendments to such registration statement, such amended prospectuses subject to
completion and such abbreviated registration statements pursuant to Rule 462(b)
of the Rules and Regulations as may have been required prior to the date hereof
have been similarly prepared and filed with the Commission; and the Company will
file such additional amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
as may hereafter be required. Copies of such registration statement and
amendments, of each related prospectus subject to completion (the "Preliminary
Prospectuses") and of any abbreviated registration statement pursuant to Rule
462(b) of the Rules and Regulations have been delivered to you.
If the registration statement relating to the Shares has been declared
effective under the Act by the Commission, the Company will prepare and promptly
file with the Commission the information omitted from the registration statement
pursuant to Rule 430A(a) or, if Robertson, Stephens & Company, L.P., on behalf
of the several Underwriters, shall agree to the utilization of Rule 434 of the
Rules and Regulations, the information required to be included in any term sheet
filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and
Regulations pursuant to subparagraph (1), (4) or (7) of Rule 424(b) of the Rules
and Regulations or as part of a post-effective amendment to the registration
statement (including a final form of prospectus). If the registration statement
relating to the Shares has not been declared effective under the Act by the
Commission, the Company will prepare and promptly file an amendment to the
registration statement, including a final form of prospectus, or, if Robertson,
Stephens & Company, L.P., on behalf of the several Underwriters, shall agree to
the utilization of Rule 434 of the Rules and Regulations, the information
required to be included in any term sheet filed pursuant to Rule 434(b) or (c),
as applicable, of the Rules and Regulations. The term "Registration Statement"
as used in this Agreement shall mean such registration statement, including
financial statements, schedules and exhibits, in the form in which it became or
becomes, as the case may be, effective (including, if the Company omitted
information from the registration statement pursuant to Rule 430A(a) or files a
term sheet pursuant to Rule 434 of the Rules and Regulations, the information
deemed to be a part of the registration statement at the time it became
effective pursuant to Rule 430A(b) or Rule 434(d) of the Rules and Regulations)
and, in the event of any amendment thereto or the filing of any abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations
relating thereto after the effective date of such registration statement, shall
also mean (from and after the effectiveness of such amendment or the filing of
such abbreviated registration statement) such registration statement as so
amended, together with any such abbreviated registration statement. The term
"Prospectus" as used in this Agreement shall mean the prospectus relating to the
Shares as included in such Registration Statement at the time it becomes
effective (including, if the Company omitted information from the Registration
Statement pursuant to Rule 430A(a) of the Rules and Regulations, the information
deemed to be a part of the Registration Statement at the time it became
effective pursuant to Rule 430A(b) of the Rules and Regulations); provided,
however, that if in reliance on Rule 434 of the Rules and Regulations and with
the consent of Robertson, Stephens & Company, L.P., on behalf of the several
Underwriters, the Company shall have provided to the Underwriters a term sheet
pursuant to Rule 434(b) or (c), as applicable, prior to the time that a
confirmation is sent or given for purposes of Section 2(10)(a) of the Act, the
term "Prospectus" shall mean the "prospectus subject to
-2-
<PAGE>
completion" (as defined in Rule 434(g) of the Rules and Regulations) last
provided to the Underwriters by the Company and circulated by the Underwriters
to all prospective purchasers of the Shares (including the information deemed to
be a part of the Registration Statement at the time it became effective pursuant
to Rule 434(d) of the Rules and Regulations). Notwithstanding the foregoing, if
any revised prospectus shall be provided to the Underwriters by the Company for
use in connection with the offering of the Shares that differs from the
prospectus referred to in the immediately preceding sentence (whether or not
such revised prospectus is required to be filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations), the term "Prospectus" shall refer to
such revised prospectus from and after the time it is first provided to the
Underwriters for such use. If in reliance on Rule 434 of the Rules and
Regulations and with the consent of Robertson, Stephens & Company, L.P., on
behalf of the several Underwriters, the Company shall have provided to the
Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable, prior
to the time that a confirmation is sent or given for purposes of Section
2(10)(a) of the Act, the Prospectus and the term sheet, together, will not be
materially different from the prospectus in the Registration Statement.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus or instituted proceedings for that
purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and at the time
the Registration Statement became or becomes, as the case may be, effective and
at all times subsequent thereto up to and on the Closing Date and on any later
date on which Option Shares are to be purchased, (i) the Registration Statement
and the Prospectus, and any amendments or supplements thereto, contained and
will contain all material information required to be included therein by the Act
and the Rules and Regulations and will in all material respects conform to the
requirements of the Act and the Rules and Regulations, (ii) the Registration
Statement, and any amendments or supplements thereto, did not and will not
include any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and (iii) the Prospectus, and any amendments or supplements thereto,
did not and will not include any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
that none of the representations and warranties contained in this subparagraph
(b) shall apply to information contained in or omitted from the Registration
Statement or Prospectus, or any amendment or supplement thereto, in reliance
upon, and in conformity with, written information relating to any Underwriter
furnished to the Company by such Underwriter specifically for use in the
preparation thereof.
(c) Each of the Company and its subsidiaries (as hereinafter defined)
has been duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation with full power
and authority (corporate and other) to own, lease and operate its properties and
conduct its business as described in the Prospectus; the Company owns all of the
outstanding capital stock of its subsidiaries free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest; each of the
Company and its subsidiaries is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise; no proceeding has been
instituted in any such jurisdiction, revoking, limiting or curtailing, or
seeking to revoke, limit or curtail, such power and authority or qualification;
neither the Company nor any of its subsidiaries is in violation of its
respective charter or
-3-
<PAGE>
bylaws or in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any material bond,
debenture, note or other evidence of indebtedness, or in any material lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which the Company or any of its subsidiaries is
a party or by which it or any of its subsidiaries or their respective properties
may be bound; and neither the Company nor any of its subsidiaries is in material
violation of any law, order, rule, regulation, writ, injunction, judgment or
decree of any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or any of its subsidiaries or over
their respective properties of which it has knowledge. The Company does not have
any subsidiaries, nor does it control, directly or indirectly, or own, directly
or indirectly, any shares of stock or any other equity interest of any
corporation, partnership or limited liability company, other than those entities
identified on Schedule C hereto. For purposes of this Agreement, the term
"subsidiary" includes any corporation, partnership, limited liability company or
other entity in which the Company or any subsidiary has a controlling ownership
interest.
(d) The Company has full legal right, power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and is
a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles; the performance of this Agreement and the consummation of
the transactions herein contemplated will not result in a material breach or
violation of any of the terms or provisions of, or constitute a default under,
(i) any bond, debenture, note or other evidence of indebtedness, or under any
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which it or any of its subsidiaries or their
respective properties may be bound, (ii) the charter or bylaws of the Company or
any of its subsidiaries, or (iii) any law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective properties. No consent, approval,
authorization or order of or qualification with any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or over their respective properties is
required for the execution and delivery of this Agreement and the consummation
by the Company or any of its subsidiaries of the transactions herein
contemplated, except such as may be required under the Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), all of which requirements
have been satisfied in all material respects, and except such as may be required
under state or other securities or Blue Sky laws.
(e) There is not any pending or, to the best of the Company's
knowledge, threatened action, suit, claim or proceeding against the Company, any
of its subsidiaries or any of their respective officers or any of their
respective properties, assets or rights before any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or over their respective officers or
properties or otherwise which (i) might result in any material adverse change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise or might materially and adversely affect their properties, assets or
rights, (ii) might prevent consummation of the transactions contemplated hereby
or (iii) is required to be disclosed in the Registration Statement or Prospectus
and is not so disclosed; and there are no agreements, contracts, leases or
documents of the Company or any of its subsidiaries of a character required to
be described or referred to in the Registration Statement or Prospectus or to be
filed as an exhibit to the Registration Statement by the Act or the Rules and
Regulations which have not been
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<PAGE>
accurately described in all material respects in the Registration Statement or
Prospectus or filed as exhibits to the Registration Statement.
(f) All outstanding shares of capital stock of the Company (including
the Selling Stockholder Shares) have been duly authorized and validly issued and
are fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, were not issued in violation of or subject to
any preemptive rights or other rights to subscribe for or purchase securities,
and the authorized and outstanding capital stock of the Company is as set forth
in the Prospectus under the caption "Capitalization" and conforms in all
material respects to the statements relating thereto contained in the
Registration Statement and the Prospectus (and such statements correctly state
the substance of the instruments defining the capitalization of the Company);
the Company Shares and the Option Shares have been duly authorized for issuance
and sale to the Underwriters pursuant to this Agreement and, when issued and
delivered by the Company against payment therefor in accordance with the terms
of this Agreement, will be duly and validly issued and fully paid and
nonassessable, and will be sold free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest; and no preemptive right, co-
sale right, tag along right, registration right, right of first refusal or other
similar right of stockholders exists with respect to any of the Company Shares
or Option Shares or the issuance and sale thereof other than those that have
been expressly waived prior to the date hereof. No further approval or
authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale or transfer of the Shares except as
may be required under the Act, the Exchange Act or under state or other
securities or Blue Sky laws. All issued and outstanding shares of capital stock
of each subsidiary of the Company have been duly authorized and validly issued
and are fully paid and nonassessable, and were not issued in violation of or
subject to any preemptive right, or other rights to subscribe for or purchase
shares and are owned by the Company free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest. Except as disclosed in or
contemplated by the Prospectus and the financial statements of the Company and
the related notes thereto included in the Prospectus, neither the Company nor
any subsidiary has outstanding any options to purchase, or any preemptive rights
or other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the Prospectus accurately and fairly presents
the information required to be shown with respect to such plans, arrangements,
options and rights. Except as disclosed in the Prospectus, there are no
stockholders agreements, voting agreements or other similar agreements with
respect to the Common Stock to which the Company is a party or, to the knowledge
of the Company, between or among any of the Company's stockholders.
(g) KPMG Peat Marwick LLP, which has examined the consolidated
financial statements of the Company, together with the related schedules and
notes, as of December 31, 1994 and 1995 and for each of the years in the three
(3) years ended December 31, 1995 filed with the Commission as a part of the
Registration Statement, which are included in the Prospectus, are independent
accountants within the meaning of the Act and the Rules and Regulations; the
audited consolidated financial statements of the Company, together with the
related schedules and notes, and the unaudited consolidated financial
information, forming part of the Registration Statement and Prospectus, fairly
present the financial position and the results of operations of the Company and
its subsidiaries at the respective dates and for the respective periods to which
they apply; and all audited consolidated financial statements of the Company,
together with the related schedules and notes, and the unaudited consolidated
financial information, filed with the Commission as part of the Registration
Statement, have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved except as may be
otherwise stated therein. The selected and summary financial and statistical
data included in the
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<PAGE>
Registration Statement present fairly the information shown therein and have
been compiled on a basis consistent with the audited financial statements
presented therein. No other financial statements or schedules are required to be
included in the Registration Statement.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been (i) any
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise, (ii) any transaction that is material to the
Company and its subsidiaries considered as one enterprise, except transactions
entered into in the ordinary course of business, (iii) any obligation, direct or
contingent, that is material to the Company and its subsidiaries considered as
one enterprise, incurred by the Company or its subsidiaries, except obligations
incurred in the ordinary course of business, (iv) any change in the capital
stock or outstanding indebtedness of the Company or any of its subsidiaries that
is material to the Company and its subsidiaries considered as one enterprise,
(v) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company or any of its subsidiaries, or (vi) any loss or
damage (whether or not insured) to the property of the Company or any of its
subsidiaries which has been sustained or will have been sustained which has a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise.
(i) Except as set forth in the Registration Statement and Prospectus,
(i) each of the Company and its subsidiaries has good and marketable title to
all properties and assets described in the Registration Statement and Prospectus
as owned by it, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest, other than such as would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise, (ii) the agreements to which the Company or any of
its subsidiaries is a party described in the Registration Statement and
Prospectus are valid agreements, enforceable by the Company and its subsidiaries
(as applicable), except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles and, to the best of the Company's knowledge, the other contracting
party or parties thereto are not in material breach or material default under
any of such agreements, and (iii) each of the Company and its subsidiaries has
valid and enforceable leases for all properties described in the Registration
Statement and Prospectus as leased by it, except as the enforcement thereof may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles. Except as set forth in the Registration Statement
and Prospectus, the Company owns or leases all such properties as are necessary
to its operations as now conducted or as proposed to be conducted.
(j) The Company and its subsidiaries have timely filed all necessary
federal, state and foreign income and franchise tax returns and have paid all
taxes shown thereon as due, and there is no tax deficiency that has been or, to
the best of the Company's knowledge, might be asserted against the Company or
any of its subsidiaries that might have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise; and
all tax liabilities are adequately provided for on the books of the Company and
its subsidiaries.
(k) The Company and its subsidiaries maintain insurance with insurers
of recognized financial responsibility of the types and in the amounts generally
deemed adequate for their respective businesses and consistent with insurance
coverage maintained by similar companies in similar businesses, including, but
not limited to, insurance covering real and personal property owned or leased by
the
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<PAGE>
Company or its subsidiaries against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect; neither the Company nor any such
subsidiary has been refused any insurance coverage sought or applied for; and
neither the Company nor any such subsidiary has any reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise.
(l) To the best of Company's knowledge, no labor disturbance by the
employees of the Company or any of its subsidiaries exists or is imminent; and
the Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, subassemblers, value added
resellers, subcontractors, original equipment manufacturers, authorized dealers
or international distributors that might be expected to result in a material
adverse change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise. No collective bargaining agreement exists with any of the
Company's employees and, to the best of the Company's knowledge, no such
agreement is imminent.
(m) Each of the Company and its subsidiaries owns or possesses
adequate rights to use all patents, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names and copyrights which are
necessary to conduct its businesses as now conducted and as proposed to be
conducted; the expiration of any patents, patent rights, trade secrets,
trademarks, service marks, trade names or copyrights would not have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise; the Company has not received any notice of, and has no knowledge
of, any infringement of or conflict with asserted rights of the Company by
others with respect to any patent, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names or copyrights; and the Company
has not received any notice of, and has no knowledge of, any infringement of or
conflict with asserted rights of others with respect to any patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names or copyrights which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a material adverse effect on
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise.
(n) Except as described in the Registration Statement and Prospectus,
the Company and its subsidiaries have operated and currently operate their
business in conformity with all applicable laws, rules and regulations of each
jurisdiction in which it is conducting business, except where the failure to be
so in compliance would not have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise. The Company
and its subsidiaries have all licenses, certificates, authorizations, approvals,
permits, franchises, orders and consents from all state, federal and other
governmental or regulatory authorities which are necessary to the conduct of
their businesses, except where the failure to be so in compliance would not have
a material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise. All of such licenses, certificates,
authorizations, approvals, permits, franchises, orders and consents are valid
and in full force and effect. Except as described in the Registration Statement
and Prospectus, the Company and its subsidiaries have fulfilled and performed,
and will fulfill and perform, all of their obligations with respect to, and are
operating in compliance with, all such licenses, certificates, authorizations,
approvals, permits, franchises, orders and consents and no event has occurred
which allows,
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<PAGE>
or after notice or lapse of time would allow, revocation or termination thereof
or result in any impairment of the rights of the holder thereof, except to the
extent that any such revocation, termination or impairment would not have a
material adverse effect on the financial condition, results of operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise. Except as set forth in the Registration Statement and
Prospectus, no such licenses, certificates, authorizations, approvals, permits,
franchises, orders or consents contain any restrictions that have or may have a
material adverse effect on the financial condition, results of operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise. The Company and its subsidiaries are not aware of any existing
or imminent matter which may adversely impact their operations or business
prospects other than as disclosed in the Registration Statement and Prospectus.
(o) The Common Stock is registered pursuant to Section 12(g) of the
Exchange Act and is listed on The Nasdaq Stock Market, Inc. National Market (the
"Nasdaq National Market"), and the Company has taken no action designed to, or
likely to have the effect of, terminating the registration of the Common Stock
under the Exchange Act or delisting the Common Stock from the Nasdaq National
Market, nor has the Company received any notification that the Commission or the
National Association of Securities Dealers, Inc. ("NASD") is contemplating
terminating such registration or listing. The Company has filed in a timely
manner all reports and other information required to be filed with the
Commission pursuant to the Exchange Act during the twelve calendar months and
any portion of a month immediately preceding the filing of the Registration
Statement (or during such shorter period of time that the Company has been
subject to the reporting requirements of the Exchange Act).
(p) The Company has been advised concerning the Investment Company Act
of 1940, as amended (the "1940 Act"), and the rules and regulations thereunder,
and has in the past conducted, and intends in the future to conduct, its affairs
in such a manner as to ensure that it will not become an "investment company" or
a company "controlled" by an "investment company" within the meaning of the 1940
Act and such rules and regulations. Neither the Company nor any of its
subsidiaries is, nor will the Company or any of its subsidiaries become upon the
sale of the Shares and the application of the proceeds therefrom as described in
the Prospectus under the caption "Use of Proceeds," an "investment company" or a
person controlled by an "investment company" within the meaning of the 1940 Act.
(q) The Company has not distributed and will not distribute prior to
the later of (i) the Closing Date, or any date on which Option Shares are to be
purchased, as the case may be, and (ii) completion of the distribution of the
Shares, any offering material in connection with the offering and sale of the
Shares other than any Preliminary Prospectuses, the Prospectus, the Registration
Statement and other materials, if any, permitted by the Act.
(r) Neither the Company nor any of its subsidiaries, nor to the
knowledge of the Company, any agent or other person acting on behalf of the
Company or any subsidiary has, directly or indirectly, used any corporate funds
for unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity; made any unlawful payment to
foreign or domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds; failed to disclose fully
any contribution in violation of law; violated in any material respect any
provision of the Foreign Corrupt Practices Act of 1977, as amended; or made any
unlawful bribe, rebate, payoff, influence, kick-back or other unlawful payment.
(s) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
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<PAGE>
(t) Each officer of the Company, each director of the Company, each
Selling Stockholder (other than the trustee of the Company's 401(k) Retirement
Plan (the "401(k) Plan")) and each beneficial owner of Common Stock listed on
Schedule D hereto has agreed in writing that such person will not, for a period
of 90 days from the date that the Registration Statement is declared effective
by the Commission (the "Lock-up Period"), offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to
(collectively, a "Disposition") any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into or exchangeable for shares of Common Stock (collectively, "Securities") now
owned or hereafter acquired by such person, directly or indirectly, or with
respect to which such person has or hereafter acquires the power of disposition,
directly or indirectly, other than (i) as a bona fide gift or gifts, provided
the donee or donees thereof agree in writing to be bound by this restriction,
(ii) as a distribution to limited partners or stockholders of such person,
provided that the distributees thereof agree in writing to be bound by the terms
of this restriction, (iii) if such person is an individual, to a member or
members of his or her immediate family or to a trust the beneficiaries of which
are exclusively such person and/or a member or members of his or her immediate
family, provided that each transferee thereof agrees in writing to be bound by
the terms of this restriction, or (iv) with the prior written consent of
Robertson, Stephens & Company, L.P. Further, the trustee of the 401(k) Plan has
agreed in writing that such trustee will not, during the Lock-up Period, effect
a Disposition of any Securities now owned or hereafter acquired by such trustee,
directly or indirectly, for the benefit of the participants in the 401(k) Plan
or with respect to which such trustee has or hereafter acquires the power of
disposition, directly or indirectly, for the benefit of the participants in the
401(k) Plan; other than (i) pursuant to a valid distribution to a 401(k) Plan
participant that is required by the terms and conditions of the 401(k) Plan,
(ii) pursuant to a private sale not effected through a securities broker or
dealer or through the Nasdaq National Market, provided that the purchaser
thereof agrees in writing to be bound by the terms of this restriction, or (iii)
during any period there is outstanding a tender offer that is subject to Section
14(d)(1) of the Exchange Act. The foregoing restrictions are expressly agreed to
preclude the holder of the Securities from engaging in any hedging or other
transaction which is designed to or reasonably expected to lead to or result in
a Disposition of Securities during the Lock-up Period, even if such Securities
would be disposed of by someone other than such holder. Such prohibited hedging
or other transactions would include, without limitation, any short sale (whether
or not against the box) or any purchase, sale or grant of any right (including,
without limitation, any put or call option) with respect to any Securities or
with respect to any security (other than a broad-based market basket or index)
that includes, relates to or derives any significant part of its value from
Securities. Furthermore, each such person has agreed and consented to the entry
of stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by such person except in compliance with the
foregoing restrictions. The Company has provided to counsel for the Underwriters
a complete and accurate list of all securityholders of the Company and the
number and type of securities held by each securityholder. The Company has
provided to counsel for the Underwriters true, accurate and complete copies of
all of the agreements pursuant to which its officers, directors and stockholders
have agreed to such or similar restrictions (the "Lock-up Agreements") presently
in effect or effected hereby. The Company hereby represents and warrants that it
will not release any of its officers, directors or other stockholders from any
Lock-up Agreements currently existing or hereafter effected without the prior
written consent of Robertson, Stephens & Company, L.P.
(u) The operations of the Company and its subsidiaries with respect to
any real property currently leased, owned or by any means controlled by the
Company or any of its subsidiaries (the "Real Property") are in compliance with
all federal, state, and local laws, ordinances, rules, and regulations relating
to occupational health and safety and the environment; the Company
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<PAGE>
and its subsidiaries maintain all licenses, permits and authorizations necessary
to operate under all such laws applicable to the Company and its subsidiaries;
and there is no pending or, to the best knowledge of the Company, threatened,
claim, litigation or any administrative agency proceeding, nor has the Company
or any subsidiary received any written or oral notice from any governmental
entity or third party, that: (i) alleges a violation of any such laws by the
Company or any of its subsidiaries; (ii) alleges that the Company or any of its
subsidiaries is a liable party under the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended, 42 U.S.C. (S) 9601 et seq.
("CERCLA"), or any state superfund law; (iii) alleges possible contamination of
the environment by the Company or any of its subsidiaries; or (iv) alleges
possible contamination of the Real Property. No property which is owned, leased
or occupied by the Company has been designated as a Superfund site pursuant to
CERCLA or otherwise designated as a contaminated site under applicable state or
local law.
(v) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(x) There are no outstanding loans, advances (except normal advances
for business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus, and except
for loans, advances or guarantees to or for the benefit of any one of such
persons which do not exceed $60,000 in the aggregate.
(y) The Company has complied with all provisions of Florida Statutes
Section 517.075, and the regulations thereunder, relating to doing business with
the Government of Cuba or with any person or affiliate located in Cuba.
(z) No subsidiary of the Company is prohibited, directly or
indirectly, from paying any dividends, from making any other distributions on
such subsidiary's capital stock, from repaying to the Company any loans or
advances to such subsidiary or from transferring any of such subsidiary's
property or assets to the Company or any other subsidiary of the Company, except
as disclosed in the Registration Statement and Prospectus and except for such
limitations that may be contained in the corporate code of the jurisdiction
under which such subsidiary is incorporated.
(aa) To the best of the Company's knowledge, other than Bernard
Goldstein's relationship with Broadview Associates, M. Fazle Husain's
relationship with Morgan, Stanley & Co. and Ellyn Acker's relationship with
Prudential Securities Incorporated, no officer, director or securityholder of
the Company has an "association" or "affiliation" with any member of the
National Association of Securities Dealers, Inc. ("NASD"), within the meaning of
Article III, Section 44 of the Rules of Fair Practice of the NASD. The Company
does not have an "association" or "affiliation" with any member of the NASD,
within the meaning of Article III, Section 44 of the Rules of Fair Practice of
the NASD.
II. Each Selling Stockholder, severally and not jointly, represents
and warrants to and agrees, with respect to himself or itself alone, with each
Underwriter and the Company that:
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(a) Such Selling Stockholder now has and on the Closing Date will have
valid marketable title to the Shares to be sold by such Selling Stockholder,
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest other than pursuant to this Agreement; and upon delivery of
such Shares hereunder and payment of the purchase price as herein contemplated,
each of the Underwriters will obtain valid marketable title to the Shares
purchased by it from such Selling Stockholder, free and clear of any pledge,
lien, security interest pertaining to such Selling Stockholder or such Selling
Stockholder's property, encumbrance, claim or equitable interest, including any
liability for estate or inheritance taxes, or any liability to or claims of any
creditor, devisee, legatee or beneficiary of such Selling Stockholder.
(b) Such Selling Stockholder has duly authorized (if applicable),
executed and delivered, in the form heretofore furnished to the Representatives,
an irrevocable Power of Attorney (the "Power of Attorney") appointing Thomas R.
Hutchison and David B. Mullen as attorneys-in-fact (collectively, the
"Attorneys" and individually, an "Attorney") and a Letter of Transmittal and
Custody Agreement (the "Custody Agreement") with Harris Trust and Savings Bank,
as custodian (the "Custodian"); each of the Power of Attorney and the Custody
Agreement constitutes a valid and binding agreement on the part of such Selling
Stockholder, enforceable in accordance with its terms, except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles; and each of such Selling
Stockholder's Attorneys, acting alone, is authorized to execute and deliver this
Agreement and the certificate referred to in Section 6(h) hereof on behalf of
such Selling Stockholder, to determine the purchase price to be paid by the
several Underwriters to such Selling Stockholder as provided in Section 3
hereof, to authorize the delivery of the Selling Stockholder Shares under this
Agreement and to duly endorse (in blank or otherwise) the certificate or
certificates representing such Shares or a stock power or powers with respect
thereto, to accept payment therefor, and otherwise to act on behalf of such
Selling Stockholder in connection with this Agreement.
(c) All consents, approvals, authorizations and orders required for
the execution and delivery by such Selling Stockholder of the Power of Attorney
and the Custody Agreement, the execution and delivery by or on behalf of such
Selling Stockholder of this Agreement and the sale and delivery of the Selling
Stockholder Shares under this Agreement (other than, at the time of the
execution hereof (if the Registration Statement has not yet been declared
effective by the Commission), the issuance of the order of the Commission
declaring the Registration Statement effective and such consents, approvals,
authorizations or orders as may be necessary under state or other securities or
Blue Sky laws) have been obtained and are in full force and effect; such Selling
Stockholder, if other than a natural person, has been duly organized and is
validly existing in good standing under the laws of the jurisdiction of its
organization as the type of entity that it purports to be; and such Selling
Stockholder has full legal right, power and authority to enter into and perform
its obligations under this Agreement and such Power of Attorney and Custody
Agreement, and to sell, assign, transfer and deliver the Shares to be sold by
such Selling Stockholder under this Agreement.
(d) Such Selling Stockholder (other than the trustee of the 401(k)
Plan) will not, during the Lock-up Period, effect the Disposition of any
Securities now owned or hereafter acquired by such Selling Stockholder, directly
or indirectly, or with respect to which such Selling Stockholder has or
hereafter acquires the power of disposition, directly or indirectly, other than
(i) as a bona fide gift or gifts, provided the donee or donees thereof agree in
writing to be bound by this restriction, (ii) as a distribution to limited
partners or stockholders of such Selling Stockholder, provided that the
distributees thereof agree in writing to be bound by the terms of this
restriction, (iii) if such Selling Stockholder is an individual, to a member or
members of his or her immediate family or to a trust the beneficiaries of which
are exclusively
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such Selling Stockholder and/or a member or members of his or her immediate
family, provided that each transferee thereof agrees in writing to be bound by
the terms of this restriction, or (iv) with the prior written consent of
Robertson, Stephens & Company, L.P. As to the trustee of the 401(k) Plan, such
trustee agrees that it will not, during the Lock-up Period, effect a Disposition
of any Securities now owned or hereafter acquired by such trustee, directly or
indirectly, for the benefit of the participants in the 401(k) Plan or with
respect to which such trustee has or hereafter acquires the power of
disposition, directly or indirectly, for the benefit of the participants in the
401(k) Plan; other than (i) pursuant to a valid distribution to a 401(k) Plan
participant that is required by the terms and conditions of the 401(k) Plan,
(ii) pursuant to a private sale not effected through a securities broker or
dealer or through the Nasdaq National Market, provided that the purchaser
thereof agrees in writing to be bound by the terms of this restriction, or (iii)
during any period there is outstanding a tender offer that is subject to Section
14(d)(1) of the Exchange Act. The foregoing restrictions are expressly agreed to
preclude the holder of the Securities from engaging in any hedging or other
transaction which is designed to or reasonably expected to lead to or result in
a Disposition of Securities during the Lock-up Period, even if such Securities
would be disposed of by someone other than the Selling Stockholder. Such
prohibited hedging or other transactions would include, without limitation, any
short sale (whether or not against the box) or any purchase, sale or grant of
any right (including, without limitation, any put or call option) with respect
to any Securities or with respect to any security (other than a broad-based
market basket or index) that includes, relates to or derives any significant
part of its value from Securities. Such Selling Stockholder also agrees and
consents to the entry of stop transfer instructions with the Company's transfer
agent against the transfer of the securities held by such Selling Stockholder
except in compliance with the foregoing restrictions.
(e) Certificates in negotiable form for all Shares to be sold by such
Selling Stockholder under this Agreement, together with a stock power or powers
duly endorsed in blank by such Selling Stockholder, have been placed in custody
with the Custodian for the purpose of effecting delivery hereunder.
(f) This Agreement has been duly authorized by each Selling
Stockholder that is not a natural person and has been duly executed and
delivered by or on behalf of such Selling Stockholder and is a valid and binding
agreement of such Selling Stockholder, enforceable in accordance with its terms,
except as rights to indemnification hereunder may be limited by applicable law
and except as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; and the
performance of this Agreement and the consummation of the transactions herein
contemplated will not result in a breach or violation of any of the terms and
provisions of or constitute a default under any bond, debenture, note or other
evidence of indebtedness, or under any lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture or other agreement or instrument to
which such Selling Stockholder is a party or by which such Selling Stockholder,
or any Selling Stockholder Shares, may be bound or, to the best of such Selling
Stockholder's knowledge, result in any violation of any law, order, rule,
regulation, writ, injunction, judgment or decree of any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over such
Selling Stockholder or over the properties of such Selling Stockholder, or, if
such Selling Stockholder is other than a natural person, result in any violation
of any provisions of the charter, bylaws or other organizational documents of
such Selling Stockholder.
(g) Such Selling Stockholder has not taken and will not take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
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(h) Such Selling Stockholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
(i) All information furnished by or on behalf of such Selling
Stockholder relating to such Selling Stockholder and the Selling Stockholder
Shares that is contained in the representations and warranties of such Selling
Stockholder in such Selling Stockholder's Power of Attorney or set forth in the
Registration Statement and the Prospectus is, and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up to and on the Closing Date, was or will be, true, correct
and complete, and does not, and at the time the Registration Statement became or
becomes, as the case may be, effective and at all times subsequent thereto up to
and on the Closing Date, will not, contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make such information not misleading.
(j) Such Selling Stockholder will review the Prospectus and will
comply with all agreements and satisfy all conditions on its part to be complied
with or satisfied pursuant to this Agreement on or prior to the Closing Date and
will advise one of its Attorneys and Robertson, Stephens & Company, L.P. prior
to the Closing Date if any statement to be made on behalf of such Selling
Stockholder in the certificate contemplated by Section 6(h) would be inaccurate
if made as of the Closing Date.
(k) Such Selling Stockholder does not have, or has waived prior to the
date hereof, any preemptive right, co-sale right or right of first refusal or
other similar right to purchase any of the Shares that are to be sold by the
Company or any of the other Selling Stockholders to the Underwriters pursuant to
this Agreement; such Selling Stockholder does not have, or has waived prior to
the date hereof, any registration right or other similar right to participate in
the offering made by the Prospectus, other than such rights of participation as
have been satisfied by the participation of such Selling Stockholder in the
transactions to which this Agreement relates in accordance with the terms of
this Agreement; and such Selling Stockholder does not own any warrants, options
or similar rights to acquire, and does not have any right or arrangement to
acquire, any capital stock, rights, warrants, options or other securities from
the Company, other than those described in the Registration Statement and the
Prospectus.
(l) Such Selling Stockholder is not aware that any of the
representations and warranties of the Company set forth in Section 2.I. above is
untrue or inaccurate in any material respect.
3. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and the Selling Stockholders
agree, severally and not jointly, to sell to the Underwriters, and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
the Selling Stockholders, respectively, at a purchase price of $______ per
share, the respective number of Company Shares and Selling Stockholder Shares
set forth opposite the names of the Company and the Selling Stockholders in
Schedule B hereto. The obligation of each Underwriter to the Company and to each
Selling Stockholder shall be to purchase from the Company or such Selling
Stockholder that number of Company Shares or Selling Stockholder Shares, as the
case may be, which (as nearly as practicable, as determined by you) is in the
same proportion to the number of Company Shares or Selling Stockholder Shares,
as the case may be, set forth opposite the name of the Company or such Selling
Stockholder in Schedule B hereto as the number of Firm Shares which is set forth
opposite the name of such Underwriter in Schedule A hereto (subject to
adjustment as provided in Section 10) is to the total number of Firm Shares to
be purchased by all the Underwriters under this Agreement.
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The certificates in negotiable form for the Selling Stockholder Shares
have been placed in custody (for delivery under this Agreement) under the
Custody Agreement. Each Selling Stockholder agrees that the certificates for the
Selling Stockholder Shares of such Selling Stockholder so held in custody are
subject to the interests of the Underwriters hereunder, that the arrangements
made by such Selling Stockholder for such custody, including the Power of
Attorney is to that extent irrevocable and that the obligations of such Selling
Stockholder hereunder shall not be terminated by the act of such Selling
Stockholder or by operation of law, whether by the death or incapacity of such
Selling Stockholder or the occurrence of any other event, except as specifically
provided herein or in the Custody Agreement. If any Selling Stockholder should
die or be incapacitated, or if any other such event should occur, before the
delivery of the certificates for the Selling Stockholder Shares hereunder, the
Selling Stockholder Shares to be sold by such Selling Stockholder shall, except
as specifically provided herein or in the Custody Agreement, be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as if
such death, incapacity or other event had not occurred, regardless of whether
the Custodian shall have received notice of such death or other event.
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made against
payment of the purchase price therefor by the several Underwriters by certified
or official bank check or checks drawn in next-day funds, payable to the order
of the Company with regard to the Shares being purchased from the Company, and
to the order of the Custodian for the respective accounts of the Selling
Stockholders with regard to the Shares being purchased from such Selling
Stockholders (and the Company and such Selling Stockholders agree not to deposit
and to cause the Custodian not to deposit any such check in the bank on which it
is drawn, and not to take any other action with the purpose or effect of
receiving immediately available funds, until the business day following the date
of its delivery to the Company or the Custodian, as the case may be, and, in the
event of any breach of the foregoing, the Company or the Selling Stockholders,
as the case may be, shall reimburse the Underwriters for the interest lost and
any other expenses borne by them by reason of such breach), at the offices of
Sachnoff & Weaver, Ltd., 30 South Wacker Drive, Chicago, Illinois 60606 (or at
such other place as may be agreed upon among the Representatives and the Company
and the Selling Stockholders), at 7:00 A.M., San Francisco time on either (a)
the third (3rd) full business day following the first day that Shares are traded
or (b) if this Agreement is executed and delivered after 1:30 P.M., San
Francisco time, the fourth (4th) full business day following the day that this
Agreement is executed and delivered or (c) at such other time and date not later
than seven (7) full business days following the first day that Shares are traded
as the Representatives and the Company and the Selling Stockholders may
determine (or at such time and date to which payment and delivery shall have
been postponed pursuant to Section 10 hereof), such time and date of payment and
delivery being herein called the "Closing Date;" provided, however, that if the
Company has not made available to the Representatives copies of the Prospectus
within the time provided in Section 4(d) hereof, the Representatives may, in
their sole discretion, postpone the Closing Date until no later than two (2)
full business days following delivery of copies of the Prospectus to the
Representatives. The certificates for the Firm Shares to be so delivered will be
made available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the Closing Date and will be in such
names and denominations as you may request, such request to be made at least two
(2) full business days prior to the Closing Date. If the Representatives so
elect, delivery of the Firm Shares may be made by credit through full fast
transfer to the accounts at The Depository Trust Company designated by the
Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the
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Closing Date for the Firm Shares to be purchased by such Underwriter or
Underwriters. Any such payment by you shall not relieve any such Underwriter or
Underwriters of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public offering
price of $______ per share. After the initial public offering, the several
Underwriters may, in their discretion, vary the public offering price.
The information set forth in the last paragraph on the front cover
page (insofar as such information relates to the Underwriters), in the last two
paragraphs on page 2, concerning passive market making, stabilization and over-
allotment by the Underwriters, and under the caption "Underwriting" in any
Preliminary Prospectus and in the final form of Prospectus filed pursuant to
Rule 424(b) constitutes the only information furnished by the Underwriters to
the Company for inclusion in any Preliminary Prospectus, the Prospectus or the
Registration Statement, and you, on behalf of the respective Underwriters,
represent and warrant to the Company and the Selling Stockholders that the
statements made therein do not include any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
4. Further Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective as promptly as possible; the Company will use its best efforts to
cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify you, promptly after it shall receive notice thereof, of the
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if the Company files a term sheet pursuant to Rule
434 of the Rules and Regulations, the Company will provide evidence satisfactory
to you that the Prospectus and term sheet meeting the requirements of Rule
434(b) or (c), as applicable, of the Rules and Regulations, have been filed,
within the time period prescribed, with the Commission pursuant to subparagraph
(7) of Rule 424(b) of the Rules and Regulations; if for any reason the filing of
the final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed; it will notify you promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; promptly upon your request, it will
prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the reasonable opinion of counsel
for the several Underwriters ("Underwriters' Counsel"), may be necessary or
advisable in connection with the distribution of the Shares by the Underwriters;
it will promptly prepare and file with the Commission, and promptly
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notify you of the filing of, any amendments or supplements to the Registration
Statement or Prospectus which may be necessary to correct any statements or
omissions, if, at any time when a prospectus relating to the Shares is required
to be delivered under the Act, any event shall have occurred as a result of
which the Prospectus or any other prospectus relating to the Shares as then in
effect would include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; in case any
Underwriter is required to deliver a prospectus nine (9) months or more after
the effective date of the Registration Statement in connection with the sale of
the Shares, it will prepare promptly upon request, but at the expense of such
Underwriter, such amendment or amendments to the Registration Statement and such
prospectus or prospectuses as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Act; and it will file no amendment or
supplement to the Registration Statement or Prospectus which shall not
previously have been submitted to you a reasonable time prior to the proposed
filing thereof or to which you shall reasonably object in writing, subject,
however, to compliance with the Act, the Rules and Regulations and the
provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge, of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement or of the initiation
or threat of any proceeding for that purpose; and it will promptly use its best
efforts to prevent the issuance of any stop order or to obtain its withdrawal at
the earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the Company
shall not be required in connection therewith or as a condition thereof to
qualify as a foreign corporation or to execute a general consent to service of
process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be reasonably required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as available, and, in the
case of the Prospectus and any term sheet or abbreviated term sheet under Rule
434, in no event later than the first (1st) full business day following the
first day that Shares are traded, copies of the Registration Statement (three of
which will be signed and which will include all exhibits), each Preliminary
Prospectus, the Prospectus and any amendments or supplements to such documents,
including any prospectus prepared to permit compliance with Section 10(a)(3) of
the Act, all in such quantities as you may from time to time reasonably request.
Notwithstanding the foregoing, if Robertson, Stephens & Company, L.P., on behalf
of the several Underwriters, shall agree to the utilization of Rule 434 of the
Rules and Regulations, the Company shall provide to you copies of a Preliminary
Prospectus updated in all respects through the date specified by you in such
quantities as you may from time to time reasonably request.
(e) The Company will make generally available to its securityholders
as soon as practicable, but in any event not later than the ninetieth (90th) day
following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited) complying
with the provisions of Section 11(a) of the Act and covering a twelve (12) month
period beginning after the effective date of the Registration Statement.
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(f) During a period of five (5) years after the date hereof and for
so long as the Company is a reporting company under the Exchange Act, the
Company will furnish to its stockholders as soon as practicable after the end of
each respective period, annual reports (including financial statements audited
by independent certified public accountants) and unaudited quarterly reports of
operations for each of the first three quarters of the fiscal year, and will
furnish to you and the other several Underwriters hereunder, upon request (i)
concurrently with furnishing such reports to its stockholders, statements of
operations of the Company for each of the first three (3) quarters in the form
furnished to the Company's stockholders, (ii) concurrently with furnishing to
its stockholders, a balance sheet of the Company as of the end of such fiscal
year, together with statements of operations, of stockholders' equity, and of
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent certified public accountants, (iii)
as soon as they are available, copies of all reports (financial or other) mailed
to stockholders, (iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, any securities
exchange or the NASD, (v) every material press release and every material news
item or article in respect of the Company or its affairs which was released or
prepared by the Company or any of its subsidiaries, and (vi) any additional
information of a public nature concerning the Company or its subsidiaries, or
their respective businesses, which you may reasonably request. During such five
(5) year period, if the Company shall have active subsidiaries, the foregoing
financial statements shall be on a consolidated basis to the extent that the
accounts of the Company and its subsidiaries are consolidated, and shall be
accompanied by similar financial statements for any significant subsidiary which
is not so consolidated.
(g) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which may
be the same entity as the transfer agent) for its Common Stock.
(i) If the transactions contemplated hereby are not consummated by
reason of any failure, refusal or inability on the part of the Company or any
Selling Stockholder to perform any agreement on their respective parts to be
performed hereunder or to fulfill any condition of the Underwriters' obligations
hereunder, or if the Company shall terminate this Agreement pursuant to Section
11(a) hereof, or if the Underwriters shall terminate this Agreement pursuant to
Section 11(b)(i), the Company will reimburse the several Underwriters for all
out-of-pocket expenses (including fees and disbursements of Underwriters'
Counsel) incurred by the Underwriters in investigating or preparing to market or
marketing the Shares.
(j) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(k) During the Lock-up Period, the Company will not, without the
prior written consent of Robertson Stephens & Company, L.P., effect the
Disposition of, directly or indirectly, any Securities other than (i) the sale
of the Company Shares and the Option Shares, (ii) the Company's issuance
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of options or Common Stock under the Company's Long-Term Incentive Plan (the
"Option Plan") and (iii) the issuance of Securities in connection with the
Company's acquisition of an ownership interest in another business or entity,
provided, however, that the Company may not register such Securities under the
Act or grant any registration rights with respect to such Securities without the
prior written consent of Robertson Stephens & Company, L.P.
(l) During a period of ninety (90) days from the effective date of
the Registration Statement, the Company will not file a registration statement
registering shares under the Option Plan or other employee benefit plan;
provided, however, that the Company may register shares of Common Stock on Form
S-8 in connection with issuances of shares of Common Stock to the Company's
401(k) Plan for the accounts of plan participants.
(m) For so long as there are more than 50 shareholders of record of
the Common Stock, the Company shall use its best efforts to maintain the listing
of the Common Stock on the Nasdaq National Market for a period of at least five
years after the effective date of the Registration Statement.
(n) The Company and the Selling Stockholders shall use their best
efforts to do and perform all things required or necessary to be done and
performed under this Agreement by the Company or the Selling Stockholders prior
to the Closing Date or the Option Closing Date, as the case may be, and to
satisfy all conditions precedent to the delivery of the Shares.
(o) The Company agrees to enforce (at its expense), or the benefit of
the Underwriters and at the request of Robertson, Stephens & Company, L.P., the
Lock-Up Agreements and not to waive any condition of any such agreement without
the prior written consent of Robertson, Stephens & Company, L.P.
5. Expenses.
(a) The Company and the Selling Stockholders agree with each
Underwriter that:
(i) The Company will pay and bear all costs and expenses in
connection with the preparation, printing and filing of the Registration
Statement (including financial statements, schedules and exhibits),
Preliminary Prospectuses and the Prospectus and any amendments or
supplements thereto; the printing of this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreement, the Preliminary Blue Sky
Survey and any Supplemental Blue Sky Survey, the Underwriters'
Questionnaire and Power of Attorney, and any instruments related to any of
the foregoing; the issuance and delivery of the Shares hereunder to the
several Underwriters, including transfer taxes, if any, the cost of all
certificates representing the Shares and transfer agents' and registrars'
fees; the fees and disbursements of counsel for the Company; all fees and
other charges of the Company's independent certified public accountants;
the cost of furnishing to the several Underwriters copies of the
Registration Statement (including appropriate exhibits), Preliminary
Prospectus and the Prospectus, and any amendments or supplements to any of
the foregoing; NASD filing fees and the cost of qualifying the Shares under
the laws of such jurisdictions as you may designate (including filing fees
and fees and disbursements of Underwriters' Counsel in connection with such
NASD filings and Blue Sky qualifications); and all other expenses directly
incurred by the Company and the Selling Stockholders in connection with the
performance of their obligations hereunder. Any additional expenses
incurred as a result of the sale of the Shares by the Selling Stockholders
will be borne collectively by the Company and the Selling Stockholders. The
provisions of this Section 5(a)(i) are intended to relieve the Underwriters
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from the payment of the expenses and costs which the Selling Stockholders and
the Company hereby agree to pay, but shall not affect any agreement which the
Selling Stockholders and the Company may make, or may have made, for the sharing
of any of such expenses and costs. Such agreements shall not impair the
obligations of the Company and the Selling Stockholders hereunder to the several
Underwriters.
(ii) In addition to its other obligations under Section 8(a)
hereof, the Company agrees that, as an interim measure during the pendency
of any claim, action, investigation, inquiry or other proceeding described
in Section 8(a) hereof, it will reimburse the Underwriters on a monthly
basis for all reasonable legal or other expenses incurred in connection
with investigating or defending any such claim, action, investigation,
inquiry or other proceeding, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the Company's
obligation to reimburse the Underwriters for such expenses and the
possibility that such payments might later be held to have been improper by
a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Underwriters
shall promptly return such payment to the Company together with interest,
compounded daily, determined on the basis of the prime rate listed from
time to time in The Wall Street Journal which represents the base rate on
corporate loans posted by a substantial majority of the nation's thirty
(30) largest banks (the "Prime Rate"). Any such interim reimbursement
payments which are not made to the Underwriters within thirty (30) days of
a request for reimbursement shall bear interest at the Prime Rate from the
date of such request.
(iii) In addition to their other obligations under Section 8(b)
hereof, each Selling Stockholder agrees that, as an interim measure during
the pendency of any claim, action, investigation, inquiry or other
proceeding described in Section 8(b) hereof relating to such Selling
Stockholder, it will reimburse the Underwriters on a monthly basis for all
reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of such Selling
Stockholder's obligation to reimburse the Underwriters for such expenses
and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the
Underwriters shall promptly return such payment to the Selling
Stockholders, together with interest, compounded daily, determined on the
basis of the Prime Rate. Any such interim reimbursement payments which are
not made to the Underwriters within thirty (30) days of a request for
reimbursement shall bear interest at the Prime Rate from the date of such
request.
(b) In addition to their other obligations under Section 8(c) hereof,
the Underwriters severally and not jointly agree that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding described in Section 8(c) hereof, they will reimburse the Company and
each Selling Stockholder on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company and each such Selling
Stockholder for such expenses and the possibility that such payments might later
be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Company and each such Selling Stockholder shall promptly return
such payment to the Underwriters together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim reimbursement
payments which are not made to the Company and each such Selling
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Stockholder within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Sections 5(a)(ii), 5(a)(iii)
and 5(b) hereof, including the amounts of any requested reimbursement payments,
the method of determining such amounts and the basis on which such amounts shall
be apportioned among the reimbursing parties, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 5(a)(ii), 5(a)(iii)
and 5(b) hereof and will not resolve the ultimate propriety or enforceability of
the obligation to indemnify for expenses which is created by the provisions of
Sections 8(a), 8(b) and 8(c) hereof or the obligation to contribute to expenses
which is created by the provisions of Section 8(e) hereof.
6. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company and the Selling Stockholders
herein, to the performance by the Company and the Selling Stockholders of their
respective obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 2:00 P.M., San Francisco time, on the date following the date of this
Agreement, or such later date as shall be consented to in writing by you; and no
stop order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company, any Selling Stockholder or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement and the Prospectus, and
the registration, authorization, issue, sale and delivery of the Shares, shall
have been reasonably satisfactory to Underwriters' Counsel, and such counsel
shall have been furnished with such papers and information as they may
reasonably have requested to enable them to pass upon the matters referred to in
this Section.
(c) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, there shall not have been any change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise from that set
forth in the Registration Statement or Prospectus, which, in your judgment, is
material and adverse and that makes it, in your judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus.
(d) You shall have received on the Closing Date and on any later date
on which Option Shares are purchased, as the case may be, a written opinion of
Sachnoff & Weaver, Ltd, counsel for the Company and Selling Stockholders, dated
the Closing Date or such, later date on which Option
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Shares are purchased, as the case may be, addressed to the Underwriters and with
reproduced copies or signed counterparts thereof for each of the Underwriters,
to the effect that:
(i) The Company and each subsidiary has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation.
(ii) The Company and each subsidiary has the corporate power
and authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus.
(iii) The Company and each subsidiary is duly qualified to do
business as a foreign corporation and is in good standing in each
jurisdiction, if any, in which the ownership or leasing of its properties
or the conduct of its business requires such qualification, except where
the failure to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or otherwise),
earnings, operations or business of the Company and its subsidiaries
considered as one enterprise. To such counsel's knowledge, the Company does
not own or control, directly or indirectly, any corporation, association or
other entity other than the subsidiaries listed in Schedule C hereto.
(iv) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus under the caption
"Capitalization" as of the dates stated therein; the issued and outstanding
shares of capital stock of the Company (including, without limitation, the
Selling Stockholder Shares) have been duly and validly issued and are fully
paid and nonassessable, and, to such counsel's knowledge, will not have
been issued in violation of or subject to any preemptive right, co-sale
right, registration right, right of first refusal or other similar right.
(v) All issued and outstanding shares of capital stock of
each subsidiary of the Company have been duly authorized and validly issued
and are fully paid and nonassessable, and, to such counsel's knowledge,
have not been issued in violation of or subject to any preemptive right,
co-sale right, registration right, right of first refusal or other similar
right and are owned by the Company free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest.
(vi) The Firm Shares or the Option Shares, as the case may be,
to be issued by the Company pursuant to the terms of this Agreement have
been duly authorized and, upon issuance and delivery against payment
therefor in accordance with the terms hereof, will be duly and validly
issued and fully paid and nonassessable, and will not have been issued in
violation of or subject to any preemptive right, co-sale right,
registration right, right of first refusal or other similar right of
stockholders.
(vii) The Company has the corporate power and authority to
enter into this Agreement and to issue, sell and deliver to the
Underwriters the Shares to be issued and sold by it hereunder.
(viii) This Agreement has been duly authorized by all necessary
corporate action on the part of the Company and has been duly executed and
delivered by the Company and, assuming due authorization, execution and
delivery by you, is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except insofar as indemnification
provisions
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may be limited by applicable law, and except as enforceability may be
limited by laws pertaining to bankruptcy, insolvency, fraudulent conveyance
or transfer, equitable subordination, reorganization, moratorium or similar
laws and judicial decisions affecting creditors' rights generally or by
general principles of equity and public policy, including, without
limitation, concepts of materiality, reasonableness, good faith and fair
dealing, and except that the remedies of specific performance and
injunctive relief may be granted or denied in the discretion of a court.
(ix) The Registration Statement has become effective under the
Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Act.
(x) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements
(including supporting schedules) and financial data derived therefrom as to
which such counsel need express no opinion), as of the effective date of
the Registration Statement, complied as to form in all material respects
with the requirements of the Act and the applicable Rules and Regulations.
(xi) The terms and provisions of the capital stock of the
Company conform in all material respects to the description thereof
contained in the Registration Statement and Prospectus under the caption
"Description of Capital Stock"; and the form of certificates evidencing the
Common Stock and filed as an exhibit to the Registration Statement is in
due and proper form and complies with the requirements of Delaware law.
(xii) The descriptions in the Registration Statement and the
Prospectus of statutes, legal and governmental proceedings, contracts and
other documents, insofar as such statements constitute a summary of
documents referred to therein or matters of law, are accurate summaries and
correctly present in all material respects the information required to be
presented by the Act and the applicable Rules and Regulations.
(xiii) To such counsel's knowledge, there are no agreements,
contracts, leases or documents to which the Company is a party of a
character required to be described or referred to in the Registration
Statement or Prospectus or to be filed as an exhibit to the Registration
Statement which are not described or referred to therein or filed as
required.
(xiv) The performance of this Agreement and the consummation of
the transactions herein contemplated (other than performance of the
Company's indemnification obligations hereunder, concerning which no
opinion need be expressed) will not (a) result in any violation of the
Company's charter or bylaws or (b) to such counsel's knowledge, result in a
material breach or violation of any of the terms and provisions of, or
constitute a default under, any material bond, debenture, note or other
evidence of indebtedness, or any lease, contract, indenture, mortgage, deed
of trust, loan agreement, joint venture or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which their
respective properties are bound, or any applicable statute, rule or
regulation, or any order, writ or decree of any court, government or
governmental agency or body having jurisdiction over the Company or any of
its subsidiaries or over any of their respective properties or operations
(other than state securities or Blue Sky laws, concerning which no opinion
need be expressed).
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(xv) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries or over any
of their respective properties or operations is necessary in connection
with the consummation by the Company of the transactions herein
contemplated, except such as have been obtained under the Act or such as
may be required under state or other securities or Blue Sky laws in
connection with the purchase and the distribution of the Shares by the
Underwriters.
(xvi) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company or any
of its subsidiaries of a character required to be disclosed in the
Registration Statement or the Prospectus by the Act or the Rules and
Regulations, other than those described therein.
(xvii) To such counsel's knowledge, neither the Company nor any
of its subsidiaries is presently (a) in material violation of its
respective charter or bylaws, or (b) in material breach of any applicable
statute, rule or regulation or any order, writ or decree of any court or
governmental agency or body having jurisdiction over the Company or any of
its subsidiaries or over any of their respective properties or operations.
(xviii) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of Common Stock or other
securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration
Statement and Prospectus, all holders of securities of the Company having
rights to registration of shares of Common Stock or other securities,
because of the filing of the Registration Statement by the Company have,
with respect to the offering contemplated thereby, waived such rights or
such rights have expired by reason of lapse of time following notification
of the Company's intent to file the Registration Statement or have included
securities in the Registration Statement pursuant to the exercise of and in
full satisfaction of such rights.
(xix) Neither the Company nor any of its subsidiaries is, nor
will the Company or any of its subsidiaries become upon the sale of the
Shares and the application of the proceeds therefrom as described in the
Prospectus under the caption "Use of Proceeds," an "investment company" or
a person controlled by an "investment company" within the meaning of the
1940 Act.
(xx) Each Selling Stockholder that is not a natural person has
full right, power and authority to enter into and to perform its
obligations under the Power of Attorney and Custody Agreement to be
executed and delivered by it in connection with the transactions
contemplated herein; the Power of Attorney and Custody Agreement of each
Selling Stockholder that is not a natural person has been duly authorized
by such Selling Stockholder; the Power of Attorney and Custody Agreement of
each Selling Stockholder has been duly executed and delivered by or on
behalf of such Selling Stockholder; and the Power of Attorney and Custody
Agreement of each Selling Stockholder constitutes the valid and binding
agreement of such Selling Stockholder, enforceable in accordance with its
terms, except as the enforcement thereof may be limited by laws pertaining
to bankruptcy, insolvency, fraudulent conveyance or transfer, equitable
subordination, reorganization, moratorium or similar laws and judicial
decisions affecting creditors' rights generally or by general principles of
equity and public policy, including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing, and except that
the remedies of specific performance and injunctive relief may be granted
or denied in the discretion of a court.
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(xxi) Each of the Selling Stockholders has full right, power
and authority to enter into and to perform its obligations under this
Agreement and to sell, transfer, assign and deliver the Shares to be sold
by such Selling Stockholder hereunder.
(xxii) This Agreement has been duly authorized by each Selling
Stockholder that is not a natural person and has been duly executed and
delivered by or on behalf of each Selling Stockholder and, assuming due
authorization, execution and delivery by you, is a valid and binding
agreement of such Selling Stockholder, enforceable in accordance with its
terms, except insofar as the indemnification, contribution and waiver
provisions hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by laws pertaining to bankruptcy,
insolvency, fraudulent conveyance or transfer, equitable subordination,
reorganization, moratorium or similar laws and judicial decisions affecting
creditors' rights generally or by general principles of equity and public
policy, including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, and except that the remedies
of specific performance and injunctive relief may be granted or denied in
the discretion of a court.
(xxiii) Upon the delivery of and payment for the Shares as
contemplated in this Agreement, each of the Underwriters will receive valid
marketable title to the Shares purchased by it from such Selling
Stockholder, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest. In rendering such opinion, such
counsel may assume that the Underwriters purchased in good faith and are
without notice of any defect in the title of the Shares being purchased
from the Selling Stockholders.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they are not passing upon and do not assume
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus (except as
specifically provided above), nothing has come to the attention of such counsel
which leads them to believe that, at the time the Registration Statement became
effective and at all times subsequent thereto up to and on the Closing Date and
on any later date on which Option Shares are to be purchased, the Registration
Statement and any amendment or supplement thereto (other than the financial
statements including supporting schedules and other financial and statistical
information derived therefrom and other financial or statistical data, as to
which such counsel need express no comment) contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or at the Closing
Date or any later date on which the Option Shares are to be purchased, as the
case may be, the Registration Statement, the Prospectus and any amendment or
supplement thereto (except as aforesaid) contained any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States or the States of Illinois and
Delaware upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company, the Selling
Stockholders or officers of the Selling Stockholders (when the Selling
Stockholder is not a natural person), and of government officials, in which case
their opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy in any such opinion,
representation or certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
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<PAGE>
(e) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, an opinion of
Alston & Bird, in form and substance satisfactory to you, with respect to the
sufficiency of all such corporate proceedings and other legal matters relating
to this Agreement and the transactions contemplated hereby as you may reasonably
require, and the Company shall have furnished to such counsel such documents as
they may have requested for the purpose of enabling them to pass upon such
matters.
(f) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, a letter from
KPMG Peat Marwick LLP addressed to the Company and the Underwriters, dated the
Closing Date or such later date on which Option Shares are to be purchased, as
the case may be, confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
applicable published Rules and Regulations and based upon the procedures
described in such letter delivered to you concurrently with the execution of
this Agreement (herein called the "Original Letter"), but carried out to a date
not more than five (5) business days prior to the Closing Date or such later
date on which Option Shares are to be purchased, as the case may be, (i)
confirming, to the extent true, that the statements and conclusions set forth in
the Original Letter are accurate as of the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be, and (ii) setting
forth any revisions and additions to the statements and conclusions set forth in
the Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of such letter, or to reflect
the availability of more recent financial statements, data or information. The
letter shall not disclose any change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise from that set forth in the
Registration Statement or Prospectus, which, in your judgment, is material and
adverse and that makes it, in your judgment, impracticable or inadvisable to
proceed with the public offering of the Shares as contemplated by the
Prospectus. The Original Letter from KPMG Peat Marwick LLP shall be addressed
to or for the use of the Underwriters in form and substance satisfactory to the
Underwriters and shall (i) represent, to the extent true, that they are
independent certified public accountants with respect to the Company within the
meaning of the Act and the applicable published Rules and Regulations, (ii) set
forth their opinion with respect to their examination of the consolidated
balance sheets of the Company as of December 31, 1995 and 1994 and related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three year period ended December 31, 1995, (iii) state
that KPMG Peat Marwick LLP has performed the procedure set out in Statement on
Auditing Standards No. 71 ("SAS 71") for a review of interim financial
information and providing the report of KPMG Peat Marwick LLP as described in
SAS 71 on the financial statements for the six month periods ended June 30, 1995
and 1995, and (iv) address other matters agreed upon by KPMG Peat Marwick LLP
and you.
(g) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, a certificate of
the Company, dated the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be, signed by the Chief Executive Officer
and Chief Financial Officer of the Company, to the effect that, and you shall be
satisfied that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date or
any later date on which Option Shares are to be purchased, as the case may
be, and the Company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or prior to the
Closing Date or any later date on which Option Shares are to be purchased,
as the case may be;
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(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became effective and at
all times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or
supplements thereto, contained all material information required to be
included therein by the Act and the Rules and Regulations and in all
material respects conformed to the requirements of the Act and the Rules
and Regulations, the Registration Statement, and any amendment or
supplement thereto, did not and does not include any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, the
Prospectus, and any amendment or supplement thereto, did not and does not
include any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and, since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented Prospectus which has
not been so set forth;
(iv) Each Preliminary Prospectus, when filed with the
Commission and at all time subsequent thereto up to the delivery of such
certificate, conformed in all material respects to the requirements of the
Act and the Rules and Regulations as of its date, has not included any
untrue statement of material fact or omitted to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(v) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there
has not been (a) any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise, (b) any
transaction that is material to the Company and its subsidiaries considered
as one enterprise, except transactions entered into in the ordinary course
of business, (c) any obligation, direct or contingent, that is material to
the Company and its subsidiaries considered as one enterprise, incurred by
the Company or its subsidiaries, except obligations incurred in the
ordinary course of business, (d) any change in the capital stock or
outstanding indebtedness of the Company or any of its subsidiaries that is
material to the Company and its subsidiaries considered as one enterprise,
(e) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company or any of its subsidiaries, or (f) any loss or
damage (whether or not insured) to the property of the Company or any of
its subsidiaries which has been sustained or will have been sustained which
has a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise; and
(vi) The Firm Shares and Option Shares, if any, have been
approved for listing on the Nasdaq National Market.
(h) You shall be satisfied that, and you shall have received a
certificate, dated the Closing Date from the Attorneys for each Selling
Stockholder to the effect that, as of the Closing Date, they have not been
informed that:
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(i) The representations and warranties made by such Selling
Stockholder herein are not true or correct in any material respect on the
Closing Date; or
(ii) Such Selling Stockholder has not complied with any
obligation or satisfied any condition which is required to be performed or
satisfied on the part of such Selling Stockholder at or prior to the
Closing Date.
(i) The Company shall have obtained and delivered to you an
agreement from each officer of the Company, each director of the Company, each
Selling Stockholder (other than the trustee of the 401(k) Plan) and each
beneficial owner of Common Stock listed on Schedule D hereto in writing prior to
the date hereof that such person will not, during the Lock-up Period, effect the
Disposition of any Securities now owned or hereafter acquired by such person,
directly or indirectly, or with respect to which such person has or hereafter
acquires the power of disposition, directly or indirectly, other than (i) as a
bona fide gift or gifts, provided the donee or donees thereof agree in writing
to be bound by this restriction, (ii) as a distribution to limited partners or
stockholders of such person, provided that the distributees thereof agree in
writing to be bound by the terms of this restriction, (iii) if such person is an
individual, to a member or members of his or her immediate family or to a trust
the beneficiaries of which are exclusively such person and/or a member or
members of his or her immediate family, provided that each transferee thereof
agrees in writing to be bound by the terms of this restriction, or (iv) with the
prior written consent of Robertson, Stephens & Company, L.P. As to the trustee
of the 401(k) Plan, such trustee shall have delivered to you an agreement in
writing prior to the date hereof that such trustee will not, during the Lock-up
Period, effect a Disposition of any Securities now owned or hereafter acquired
by such trustee, directly or indirectly, for the benefit of the participants in
the ESOP or with respect to which such trustee has or hereafter acquires the
power of disposition, directly or indirectly, for the benefit of the
participants in the 401(k) Plan; other than (i) pursuant to a valid distribution
to a 401(k) Plan participant that is required by the terms and conditions of the
401(k) Plan, (ii) pursuant to a private sale not effected through a securities
broker or dealer or through the Nasdaq National Market, provided that the
purchaser thereof agrees in writing to be bound by the terms of this
restriction, or (iii) during any period there is outstanding a tender offer that
is subject to Section 14(d)(1) of the Exchange Act. The foregoing restrictions
are expressly agreed to preclude the holder of the Securities from engaging in
any hedging or other transaction which is designed to or reasonably expected to
lead to or result in a Disposition of Securities during the Lock-up Period, even
if such Securities would be disposed of by someone other than the such holder.
Such prohibited hedging or other transactions would include, without limitation,
any short sale (whether or not against the box) or any purchase, sale or grant
of any right (including, without limitation, any put or call option) with
respect to any Securities or with respect to any security (other than a broad-
based market basket or index) that includes, relates to or derives any
significant part of its value from Securities. Furthermore, such person will
have also agreed and consented to the entry of stop transfer instructions with
the Company's transfer agent against the transfer of the Securities held by such
person except in compliance with the foregoing restrictions.
(j) The Company and the Selling Stockholders shall have furnished to
you such further certificates and documents as you shall reasonably request,
including, without limitation, certificates of officers of the Company, the
Selling Stockholders or officers of the Selling Stockholders (when the Selling
Stockholder is not a natural person) as to the accuracy of the representations
and warranties of the Company and the Selling Stockholders herein, as to the
performance by the Company and the Selling Stockholders of their respective
obligations hereunder and as to the other conditions concurrent and precedent to
the obligations of the Underwriters hereunder.
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All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company and the Selling Stockholders will furnish
you with such number of conformed copies of such opinions, certificates, letters
and documents as you shall reasonably request.
7. Option Shares.
-------------
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company hereby grants to the several Underwriters, for the purpose of covering
over-allotments in connection with the distribution and sale of the Firm Shares
only, a nontransferable option to purchase up to an aggregate of __________
Option Shares at the purchase price per share for the Firm Shares set forth in
Section 3 hereof. Such option may be exercised by the Representatives on behalf
of the several Underwriters on one (1) or more occasions in whole or in part
during the period of thirty (30) days after the date on which the Firm Shares
are initially offered to the public, by giving written notice to the Company.
The number of Option Shares to be purchased by each Underwriter upon the
exercise of such option shall be the same proportion of the total number of
Option Shares to be purchased by the several Underwriters pursuant to the
exercise of such option as the number of Firm Shares purchased by such
Underwriter (set forth in Schedule A hereto) bears to the total number of Firm
Shares purchased by the several Underwriters (set forth in Schedule A hereto),
adjusted by the Representatives in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in next-day funds, payable to the order of the Company (and the
Company agrees not to deposit any such check in the bank on which it is drawn,
and not to take any other action with the purpose or effect of receiving
immediately available funds, until the business day following the date of its
delivery to the Company). In the event of any breach of the foregoing, the
Company shall reimburse the Underwriters for the interest lost and any other
expenses borne by them by reason of such breach. Such delivery and payment
shall take place at the offices of Sachnoff & Weaver, Ltd., 30 South Wacker
Drive, Chicago, Illinois 60606 or at such other place as may be agreed upon
among the Representatives and the Company (i) on the Closing Date, if written
notice of the exercise of such option is received by the Company at least two
(2) full business days prior to the Closing Date, or (ii) on a date which shall
not be later than the third (3rd) full business day following the date the
Company receives written notice of the exercise of such option, if such notice
is received by the Company less than two (2) full business days prior to the
Closing Date.
The certificates for the Option Shares to be so delivered will be made
available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the date of payment and delivery and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to such date of payment and
delivery. If the Representatives so elect, delivery of the Option Shares may be
made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares to be purchased by such Underwriter
or Underwriters. Any
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such payment by you shall not relieve any such Underwriter or Underwriters of
any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a) hereof,
the obligations of the several Underwriters to purchase such Option Shares will
be subject (as of the date hereof and as of the date of payment and delivery for
such Option Shares) to the accuracy of and compliance with the representations,
warranties and agreements of the Company and the Selling Stockholders herein, to
the accuracy of the statements of the Company, the Selling Stockholders and
officers of the Company made pursuant to the provisions hereof, to the
performance by the Company and the Selling Stockholders of their respective
obligations hereunder, and to the condition that all proceedings taken at or
prior to the payment date in connection with the sale and transfer of such
Option Shares shall be reasonably satisfactory in form and substance to you and
to Underwriters' Counsel, and you shall have been furnished with all such
documents, certificates and opinions as you may request in order to evidence the
accuracy and completeness of any of the representations, warranties or
statements, the performance of any of the covenants or agreements of the Company
and the Selling Stockholders or the compliance with any of the conditions herein
contained.
8. Indemnification and Contribution.
--------------------------------
(a) The Company agrees to indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject (including, without limitation, in its
capacity as an Underwriter or as a "qualified independent underwriter" within
the meaning of Schedule E of the Bylaws of the NASD), under the Act, the
Exchange Act or otherwise, specifically including, but not limited to, losses,
claims, damages or liabilities, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any breach of any representation, warranty, agreement or covenant of the Company
herein contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (iii) any untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and agrees to reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
such Preliminary Prospectus or the Prospectus, or any such amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof and, provided further, that the indemnity agreement provided in this
Section 8(a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any losses, claims,
damages, liabilities or actions based upon any untrue statement or alleged
untrue statement of material fact or omission or alleged omission to state
therein a material fact purchased Shares, if a copy of the Prospectus in which
such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 4(d) hereof.
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<PAGE>
The indemnity agreement in this Section 8(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person, if
any, who controls any Underwriter within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which the
Company may otherwise have.
(b) Each Selling Stockholder, severally and not jointly, agrees to
indemnify and hold harmless each Underwriter against any losses, claims, damages
or liabilities, joint or several, to which such Underwriter may become subject
(including, without limitation, in its capacity as an Underwriter or as a
"qualified independent underwriter" within the meaning of Schedule E of the
Bylaws of the NASD) under the Act, the Exchange Act or otherwise, specifically
including, but not limited to, losses, claims, damages or liabilities, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any breach of any representation, warranty,
agreement or covenant of such Selling Stockholder herein contained, (ii) any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement or any amendment or supplement thereto, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(iii) any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 8(b) to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company or such Underwriter by such Selling
Stockholder, directly or through such Selling Stockholder's representatives,
specifically for use in the preparation thereof, and agrees to reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement provided in
this Section 8(b) with respect to any Preliminary Prospectus shall not inure to
the benefit of any Underwriter from whom the person asserting any losses,
claims, damages, liabilities or actions based upon any untrue statement or
alleged untrue statement of a material fact or omission or alleged omission to
state therein a material fact purchased Shares, if a copy of the Prospectus in
which such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person, if
any, who controls any Underwriter within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which
such Selling Stockholder may otherwise have.
(c) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless the Company and each Selling Stockholder against any losses,
claims, damages or liabilities, joint or several, to which the Company or such
Selling Stockholder may become subject under the Act or otherwise, specifically
including, but not limited to, losses, claims, damages or liabilities, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any breach of any representation, warranty,
agreement or covenant of such Underwriter herein contained, (ii) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement or any amendment or supplement thereto, or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or (iii) any
untrue statement or alleged untrue statement of any material fact contained in
any Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or the omission or alleged omission
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<PAGE>
to state therein a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, in
the case of subparagraphs (ii) and (iii) of this Section 8(c) to the extent, but
only to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by such Underwriter, directly or
through you, specifically for use in the preparation thereof, and agrees to
reimburse the Company and each such Selling Stockholder for any legal or other
expenses reasonably incurred by the Company and each such Selling Stockholder in
connection with investigating or defending any such loss, claim, damage,
liability or action.
The indemnity agreement in this Section 8(c) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each officer of
the Company who signed the Registration Statement and each director of the
Company, each Selling Stockholder and each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which
each Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party shall, if
a claim in respect thereof is to be made against any indemnifying party under
this Section 8, notify the indemnifying party in writing of the commencement
thereof, but the omission to so notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party under this
Section 8 (except to the extent that such omission materially and adversely
affects the indemnifying party's ability to defend such action) or from any
liability otherwise than under this Section 8. In case any such action is
brought against any indemnified party, and it notified the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it shall elect by written notice delivered to
the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have received a written
opinion from counsel that there may be legal defenses available to it and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall have
the right to select separate counsel to assume such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of the indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 8 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 8(a),
8(b) or 8(c) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; provided that such
consent shall not be unreasonably withheld. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could have
been sought hereunder by
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<PAGE>
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such proceeding.
(e) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this Section 8
but it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that, except as set forth
in Section 8(f) hereof, the Underwriters severally and not jointly are
responsible pro rata for the portion represented by the percentage that the
underwriting discount bears to the initial public offering price, and the
Company and the Selling Stockholders are responsible for the remaining portion,
provided, however, that (i) no Underwriter shall be required to contribute any
amount in excess of the underwriting discount applicable to the Shares purchased
by such Underwriter and (ii) no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. The contribution agreement in this Section 8(e) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls the Underwriters or the Company or any Selling
Stockholder within the meaning of the Act or the Exchange Act and each officer
of the Company who signed the Registration Statement and each director of the
Company and each officer of the Selling Stockholders who signed the Registration
Statement. This subsection (e) shall not be operative as to any Underwriter to
the extent that the Company or any Selling Stockholder is entitled to receive or
has received indemnity from such Underwriter under this Section 8.
(f) The liability of each Selling Stockholder under the
representations, warranties and agreements contained herein and under the
indemnity agreements contained in the provisions of this Section 8 shall be
limited to an amount equal to the initial public offering price of the Selling
Stockholder Shares sold by such Selling Stockholder to the Underwriters minus
the amount of the underwriting discount paid thereon to the Underwriters by such
Selling Stockholder. The Company and such Selling Stockholders may agree, as
among themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible.
(g) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act. The parties are advised that federal or state public policy as interpreted
by the courts in certain jurisdictions, may be contrary to certain of the
provisions of this Section 8, and the parties hereto hereby expressly waive and
relinquish any right or ability to assert such public policy as a defense to a
claim under this Section 8 and further agree not to attempt to assert any such
defense.
9. Representations, Warranties, Covenants and Agreements to Survive
Delivery. All representations, warranties, covenants and agreements of the
Company, the Selling Stockholders and the Underwriters herein or in certificates
delivered pursuant hereto, and the indemnity and contribution agreements
contained in Section 8 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter
or any controlling person within the meaning of the Act or the Exchange Act, or
by or on behalf of the Company or any Selling Stockholder, or any of their
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<PAGE>
officers, directors or controlling persons within the meaning of the Act or the
Exchange Act, and shall survive the delivery of the Shares to the several
Underwriters hereunder or termination of this Agreement.
10. Substitution of Underwriters. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for twenty-
four (24) hours to allow the several Underwriters the privilege of substituting
within twenty-four (24) hours (including non-business hours) another underwriter
or underwriters (which may include any nondefaulting Underwriter) satisfactory
to the Company. If no such underwriter or underwriters shall have been
substituted as aforesaid by such postponed Closing Date, the Closing Date may,
at the option of the Company, be postponed for a further twenty-four (24) hours,
if necessary, to allow the Company the privilege of finding another underwriter
or underwriters, satisfactory to you, to purchase the Firm Shares which the
defaulting Underwriter or Underwriters so agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted underwriter or
underwriters to take up the Firm Shares of the defaulting Underwriter or
Underwriters as provided in this Section 10, (i) the Company shall have the
right to postpone the time of delivery for a period of not more than seven (7)
full business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary, and (ii) the respective number of Firm Shares to
be purchased by the remaining Underwriters and substituted underwriter or
underwriters shall be taken as the basis of their underwriting obligation. If
the remaining Underwriters shall not take up and pay for all such Firm Shares so
agreed to be purchased by the defaulting Underwriter or Underwriters or
substitute another underwriter or underwriters as aforesaid and the Company
shall not find or shall not elect to seek another underwriter or underwriters
for such Firm Shares as aforesaid, then this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, neither the Company nor any Selling
Stockholder shall be liable to any Underwriter (except as provided in Sections 5
and 8 hereof) nor shall any Underwriter (other than an Underwriter who shall
have failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, the Selling
Stockholders and the other Underwriters for damages, if any, resulting from such
default) be liable to the Company or any Selling Stockholder (except to the
extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
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<PAGE>
11. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at the earlier of (i) 6:30
A.M., San Francisco time, on the first full business day following the effective
date of the Registration Statement, or (ii) the time of the initial public
offering of any of the Shares by the Underwriters after the Registration
Statement becomes effective. The time of the initial public offering shall mean
the time of the release by you, for publication, of the first newspaper
advertisement relating to the Shares, or the time at which the Shares are first
generally offered by the Underwriters to the public by letter, telephone,
telegram or telecopy, whichever shall first occur. By giving notice as set
forth in Section 12 before the time this Agreement becomes effective, you, as
Representatives of the several Underwriters, or the Company, may prevent this
Agreement from becoming effective without liability of any party to any other
party, except as provided in Sections 4(j), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters, shall have
the right to terminate this Agreement by giving notice as hereinafter specified
at any time at or prior to the Closing Date or, with respect to the Option
Shares, on or prior to any later date on which Option Shares are to be
purchased, as the case may be, (i) if the Company or any Selling Stockholder
shall have failed, refused or been unable to perform any agreement on its part
to be performed, or because any other condition of the Underwriters' obligations
hereunder required to be fulfilled is not fulfilled, including, without
limitation, any change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise from that set forth in the Registration Statement
or Prospectus, which, in your judgment, is material and adverse, or (ii) if
additional material governmental restrictions, not in force and effect on the
date hereof, shall have been imposed upon trading in securities generally or
minimum or maximum prices shall have been generally established on the New York
Stock Exchange or on the American Stock Exchange or in the over the counter
market by the NASD, or trading in securities generally shall have been suspended
on either such exchange or in the over the counter market by the NASD, or if a
banking moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or (iv)
if there shall have been a material adverse change in the general political or
economic conditions or financial markets as in your reasonable judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery of
the Shares, or (v) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration by
the United States of a national emergency which, in the reasonable opinion of
the Representatives, makes it impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. In the event
of termination pursuant to subparagraph (i) above, the Company shall remain
obligated to pay costs and expenses pursuant to Sections 4(j), 5 and 8 hereof.
Any termination pursuant to any of subparagraphs (ii) through (v) above shall be
without liability of any party to any other party except as provided in Sections
5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
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<PAGE>
12. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o Robertson, Stephens & Company, L.P., 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel; if sent to the Company, such
notice shall be mailed, delivered, telegraphed (and confirmed by letter) or
telecopied (and confirmed by letter) to Enterprise Systems, Inc., 1400 South
Wolf Road, Wheeling, Illinois 60090, telecopier number (847) 537-4800,
Attention: Glen E. Tullman, Chief Executive Officer; if sent to one or more of
the Selling Stockholders, such notice shall be sent mailed, delivered,
telegraphed (and confirmed by letter) or telecopied (and confirmed by letter) to
David B. Mullen, as Attorney-in-Fact for the Selling Stockholders, at Enterprise
Systems, Inc., 1400 South Wolf Road, Wheeling, Illinois 60090, telecopier number
(847) 537-4800.
13. Parties. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters and the Company and the Selling Stockholders and
their respective executors, administrators, successors and assigns. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person or entity, other than the parties hereto and their respective
executors, administrators, successors and assigns, and the controlling persons
within the meaning of the Act or the Exchange Act, officers and directors
referred to in Section 8 hereof, any legal or equitable right, remedy or claim
in respect of this Agreement or any provision herein contained, this Agreement
and all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or entity. No
purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase.
In all dealings with the Company and the Selling Stockholders under
this Agreement, you shall act on behalf of each of the several Underwriters, and
the Company and the Selling Stockholders shall be entitled to act and rely upon
any statement, request, notice or agreement made or given by you jointly or by
Robertson, Stephens & Company, L.P. on behalf of you.
14. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California.
15. Counterparts. This Agreement may be signed in several counterparts,
each of which will constitute an original.
[Signatures Contained on Next Page]
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<PAGE>
If the foregoing correctly sets forth the understanding among the
Company, the Selling Stockholders and the several Underwriters, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, the Selling Stockholders
and the several Underwriters.
Very truly yours,
ENTERPRISE SYSTEMS, INC.
By _____________________________________
SELLING STOCKHOLDERS
By _____________________________________
Attorney-in-Fact for the Selling
Stockholders named in Schedule B
hereto
Accepted as of the date first above written:
ROBERTSON, STEPHENS & COMPANY LLC
SMITH BARNEY INC.
WESSELS, ARNOLD & HENDERSON, LLC
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
ROBERTSON, STEPHENS & COMPANY LLC
By ROBERTSON, STEPHENS & COMPANY, INC.
By___________________________________________
Authorized Signatory
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<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of Firm
Shares to Be
Underwriters Purchased
- ------------ --------------
<S> <C>
Robertson, Stephens & Company LLC..............................
Smith Barney Inc. .............................................
Wessels, Arnold & Henderson, L.L.C.............................
___________
Total..................................................... 1,725,000
</TABLE>
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of
Company
Shares To
Company Be Sold
- ------- ------------------
<S> <C>
Enterprise Systems, Inc...................................... 900,000
__________
Total................................................... 900,000
Number of Selling
Stockholder Shares
To Be Sold
Name of Selling Stockholder ------------------
- ---------------------------
__________
Total................................................... 825,000
</TABLE>
<PAGE>
SCHEDULE C
Subsidiaries
------------
Enterprise Systems, Inc., an Illinois corporation
<PAGE>
SCHEDULE D
Certain Additional Stockholders Who Have Entered into Lock-Up Agreements
------------------------------------------------------------------------
[TO BE COMPLETED]
<PAGE>
Exhibit 5.1
(312) 207-1000
July 25, 1996
Enterprise Systems, Inc.
1400 South Wolf Road
Wheeling, Illinois 60090-6524
Ladies and Gentlemen:
We have acted as counsel to Enterprise Systems, Inc., a Delaware
corporation (the "Company"), in connection with the Registration Statement on
Form S-1 (the "Registration Statement"), filed by the Company under the
Securities Act of 1933, as amended, with the Securities and Exchange Commission
(the "Commission"), relating to the sale of up to 1,725,000 shares (the
"Shares") of the Company's Common Stock, par value $.01 per share. We have
examined the Registration Statement and the form of Underwriting Agreement filed
with the Commission as an exhibit to the Registration Statement (the
"Underwriting Agreement"). In addition, we have reviewed such other documents
and have made such further investigations as we have deemed necessary to enable
us to express the opinion hereinafter set forth.
We hereby advise you that in our opinion the Shares have been duly
authorized by the Company and, upon payment and delivery in accordance with the
Underwriting Agreement, will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Registration Statement. In giving this consent, we do not
hereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933 or the rules and regulations of
the Securities and Exchange Commission.
Very truly yours,
SACHNOFF & WEAVER, LTD.
<PAGE>
EXHIBIT 10.22
LOAN AGREEMENT
This Loan Agreement (this "Agreement") is made as of May 31, 1996 by
and among LaSalle National Bank, a national banking association (the "Bank") and
Enterprise Systems, Inc., an Illinois corporation ("Borrower").
WITNESSETH:
----------
WHEREAS, in order to provide Borrower's working capital needs and to
finance certain permitted acquisitions, Borrower desires to borrow from the Bank
and has requested that Bank replace Borrower's existing financing arrangements
with Bank by making available and lending to Borrower a revolving line of credit
in an aggregate amount not to exceed Eighteen Million and No/100 Dollars
($18,000,000.00), upon the satisfaction of certain terms and conditions, all as
more fully set forth below; and
NOW, THEREFORE, for and in consideration of the foregoing premises,
which are hereby incorporated herein as true, and the terms, conditions,
representations, warranties, covenants, promises and agreements herein
contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 Certain Definitions.
-------------------
When used herein, the following terms have the meanings as set forth
below.
"Accounts" shall have the same meaning assigned to that term in the
version of the Uniform Commercial Code currently in effect in the State of
Illinois, wheresoever located and whether now or hereafter owned, acquired,
arising or existing, including without limitation, contract rights, any and all
manner of accounts receivable and all security agreements, guaranties, letters
of credit and any other collateral security for any or all of the foregoing.
"Affiliate" means (i) any shareholder of the Borrower having an equity
or other ownership interest equal to or in excess of five percent (5%) of the
total equity or ownership interests in Borrower, (ii) any corporation or any
other Person that directly or indirectly, through one or more intermediaries,
controls or is controlled by or is under common control with the Borrower or
(iii) any officer, director, trustee, partner or shareholder of any corporation
or any other Person that directly or indirectly, through one or more
intermediaries, controls or is controlled by or is under common control with the
Borrower.
<PAGE>
"Agreement" means, collectively, this Loan Agreement, together with
any and all exhibits, attachments and amendments thereto and modifications,
renewals, extensions, restatements and substitutions thereof and therefor.
"Bank" means the LaSalle National Bank, a national banking
association.
"Banking Day" means any day other than a Saturday, Sunday or legal
holiday.
"Borrower" has the meaning set forth in the preamble hereof.
"Default Interest Rate" means an interest rate equal to 3% in excess
of the Prime Rate.
"EBIT" means, with respect to Borrower, for any applicable measurement
period, the sum of (i) Net Income, (ii) income taxes, and (iii) Interest
Expense.
"Employee Plan" includes any pension, retirement, disability, medical,
dental or other health plan, life insurance or other death benefit plan, profit
sharing, deferred compensation, stock option, bonus or other incentive plan,
vacation benefit plan, severance plan, or other employee benefit plan or
arrangement, including, without limitation, those pension, profit-sharing and
retirement plans of the Borrower described from time to time in the Financial
Statements and any pension plan, welfare plan, Defined Benefit Pension Plans (as
defined in ERISA) or any multi-employer plan, maintained or administered by the
Borrower to which the Borrower is a party or may have any liability or by which
the Borrower is bound.
"Environmental Laws" means all federal, state and local Laws
(including, without limitation, the common law), statutes, ordinances, rules,
regulations and other requirements (including, without limitation,
administrative orders, consent agreements and conditions contained in applicable
permits), relating to health, safety, and the protection of the environment,
including, but not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), 42 U.S.C. (S) 9601 et seq. the
Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. (S) 6901 et seq., and
the Clean Air Act, 42 U.S.C. (S) 7401 et seq., as amended or hereafter amended.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
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<PAGE>
"Equipment" shall have the meaning assigned to that term in the
version of the Uniform Commercial Code currently in effect in the State of
Illinois, including, without limitation, all machinery, apparatus, equipment,
furniture, trade fixtures and motor vehicles and all accession, parts and
appurtenances thereto and all substitutions or replacements thereof, wheresoever
located, whether now or hereafter owned, acquired, arising or existing.
"Event of Default" means an event or occurrence described in Article
VI of this Agreement.
"Financial Statements" means the balance sheets, statements of income
and retained earnings and statements of cash flow of the Borrower for each
Fiscal Year or each month thereof to be delivered to the Bank pursuant to
Section 5.1(c) and 3.1(g) of this Agreement.
"Fiscal Year" means the fiscal year of the Borrower ending December 31
of each calendar year.
"Floating Rate" has the meaning set forth in Section 2.3(a).
"Funds" has the meaning set forth in Section 5.1(n)(i).
"GAAP" means generally accepted accounting principles applied on a
basis consistent with that used by the Borrower in prior years.
"Guarantor" means Enterprise Systems, Inc., a Delaware corporation.
"Hazardous Materials" means (i) hazardous substances, as that term is
defined by CERCLA, and the Illinois Environmental Protection Act, Ill. Rev.
Stat. ch. 11 1/2, (S) 1001 et seq.; (ii) hazardous or toxic chemicals,
materials, or substances within the meaning of any other applicable
Environmental Law, all as amended or hereafter amended. Hazardous Materials
shall also include, but not be limited to: (a) crude oil or any fraction
thereof which is liquid at standard conditions of temperature and pressure (60
degrees Fahrenheit and 14.7 pounds per square inch absolute); (b) any
radioactive material, including but not limited to, any source, special nuclear
or by-product material, as defined at 42 U.S.C. (S) 2011 et seq., as amended or
hereafter amended; and (c) asbestos in any form or condition.
"Indebtedness" means, without duplication, letters of credit and all
items which, in accordance with GAAP, would be included as liabilities and shall
include, without limitation, capitalized leases, secured and unsecured debt and
contingent but accrued liabilities.
"Interest Coverage Ratio" means for any applicable measurement period,
the ratio of (a) EBIT to (b) Interest Expense for such period.
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"Interest Expense" means for any applicable measurement period, the
aggregate interest expense of the Borrower for such period on all Obligations of
the Borrower, including all capitalized interest and the portion of any interest
expense payable with respect to capitalized lease obligations, but excluding any
interest in respect of debt issuance cost (to the extent being amortized as a
non-cash charge).
"Inventory" shall have the same meaning assigned to that term in the
version of the Uniform Commercial Code currently in effect in the State of
Illinois, all accessions, parts and appurtenances thereto and all substitutions
or replacements thereof, wheresoever located and whether now or hereafter owned,
acquired, arising or existing, including without limitation, raw materials,
supplies, work in process, finished goods, or inventory which has been returned
to or repossessed or stopped in transit.
"Laws" means all ordinances, statutes, rules, regulations, codes,
orders, injunctions, writs or decrees of any government, whether federal, state,
municipal or local, of any political subdivision or agency thereof, or of any
court, board or similar entity established by any of the foregoing having
jurisdiction over the Property, assets, business or operations of the Borrower.
"Leverage Ratio" means the ratio of Borrower's Liabilities to
Borrower's Net Worth.
"LIBOR-Based Rate" means that rate of interest per year equal to:
<TABLE>
<CAPTION>
If Borrower's Interest Coverage Ratio, as set
forth on the most recent Compliance
Certificate received by Bank pursuant to
Section 5.2(c)(ii) of this Agreement prior
to the start of any LIBOR Rate Borrowing
Period is: Then the Interest Rate will be:
- ------------------------------- -------------------------------
<S> <C>
Less than 2.0:1 LIBOR Rate plus 1.75%
Greater than or equal to 2.0:1
but less than or equal to 3.5:1 LIBOR Rate plus 1.50%
Greater than 3.5:1 LIBOR Rate plus 1.25%
</TABLE>
"LIBOR Rate" means during any LIBOR Rate Borrowing Period for each
Revolving Loan bearing interest at the LIBOR-Based Rate, that rate of interest
per year equal to the quotient obtained by dividing (x) the rate of interest
determined by the Bank to be the average (rounded upward to the nearest whole
multiple of one-eighth percent (1/8%) per annum, if such average is not such a
multiple) of the rate per annum at which deposits in U.S. dollars are generally
offered in the London Interbank Market at 11:00 A.M. London time, one
(1) Banking Day before the first day of such LIBOR Rate Borrowing Period, for a
period equal to such LIBOR Rate Borrowing Period, in the amount of the
applicable Revolving Loan, by (y) the difference between one hundred percent
(100%) and any
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applicable reserve requirements (rounded upward to the nearest whole multiple of
one hundredth (1/100) of one percent (1%) per annum), including without
limitation, any statutory maximum requirement for the Bank to hold reserves for
"Eurocurrency Liabilities" under Regulation D of the Board of Governors of the
Federal Reserve System (or any similar reserves under any successor regulation
or regulations).
"LIBOR Rate Borrowing Period" has the meaning set forth in Section
2.3(c).
"Liens" means any interest in Property securing an obligation owed to,
or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute or contract, and including but not
limited to the security interest or lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes. The term "Lien" shall include, without limitation,
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictments, leases and other title exceptions and encumbrances
affecting Property. For the purpose of this Agreement, the Borrower or a
Subsidiary shall be deemed to be the owner of any Property which it has acquired
or holds subject to a conditional sale agreement or other arrangement pursuant
to which title to the Property has been retained by or vested in some other
person for security purposes.
"Loans" means the Revolving Loans of the Borrower as described in
Section 2.1 hereof.
"Loan Supporting Documents" means those documents set forth in Section
3.1 hereof.
"Net Income" means, for any period, an amount equal to the net income
of the Borrower during such period, determined in accordance with GAAP.
"Net Worth" means the total of all assets of Borrower which, under
GAAP, would appear as assets on the balance sheet of Borrower, less the total of
all liabilities of Borrower, which, under GAAP, would appear as liabilities on
the balance sheet of Borrower.
"Note" means the Revolving Note executed by the Borrower, as defined
in Section 2.1(b) hereof.
"Obligations" means each and every promise, agreement, covenant, debt
and all other obligations and indebtedness of the Borrower to the Bank, its
successors or assigns, whether primary, secondary, contingent, direct, or
indirect, howsoever incurred, created, arising or evidenced, whether presently
or hereafter existing, evidenced, arising or becoming due, including, without
limitation, such obligations and indebtedness of the Borrower to the Bank
arising from or in connection with the Loans or under this Agreement, the Note
or any Loan Supporting Documents or any refinancings, substitutions, extensions,
renewals, replacements and modifications for or of the foregoing.
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<PAGE>
"Operating Account" has the meaning set forth in Section 5.1(n)(ii).
"Permitted Liens" means Liens, security interests, charges, mortgages,
pledges or any other encumbrances (i) provided for on Schedule 5.2(b) hereto;
(ii) Liens arising out of judgments or awards in respect of which the Borrower
shall in good faith be prosecuting an appeal or proceedings for review and in
respect of which the Borrower shall have secured a subsisting stay of execution
pending such appeal or proceedings for review, provided the Borrower shall have
set aside accounting reserves which are adequate in accordance with prudent
business practices, with respect to such judgment or award; (iii) Liens for
taxes, assessments or governmental charges or levies, provided payment thereof
shall not at the time be required in accordance with the provisions hereof or
which are permitted pursuant to Section 4.10 hereof; (iv) deposits, Liens or
pledges to secure payments of worker's compensation, unemployment insurance or
social security benefits arising in the ordinary course of business which are
not overdue or are being contested in good faith by appropriate proceedings
diligently pursued, provided that Borrower maintains accounting reserves on its
books to cover the above which are adequate in accordance with prudent business
practices, and such contest does not have or cause a material adverse change in
the Borrower's financial condition or operations and does not impair Borrower's
ability to perform its Obligations; (v) mechanics', workmen's, materialmen's,
repairmen's, warehousemen's, vendors' or carriers' Liens, or other similar
statutory Liens, or any easements with respect thereto, arising in the ordinary
course of business and securing sums which are not past due or are being
contested in good faith by appropriate proceedings diligently pursued, provided
that Borrower maintains accounting reserves to cover the above which are
adequate in accordance with prudent business practices, and such contest does
not have or cause a material adverse change in the Borrower's financial
condition or operations and does not impair Borrower's ability to perform its
Obligations, or deposits or pledges to obtain the release of any such Liens;
(vi) statutory landlords' liens under leases to which the Borrower is a party;
(vii) Liens incurred in the ordinary course of business to secure the
performance of statutory obligations arising in connection with progress
payments or advance payments due under contracts with the United States
government or any agency thereof entered into in the ordinary course of
business, liens incurred or deposits made in the ordinary course of business to
secure the performance of tenders, statutory obligations, bids, leases,
performance bonds, fee and expense arrangements with trustees and fiscal agents
and other similar obligations (exclusive of obligations incurred in connection
with the borrowing of money or the payment of the deferred purchase price of
property) and Liens directly securing appeal and release bonds, provided that
adequate provision for all such obligations has been made on the books of
Borrower in accordance with GAAP; and (viii) purchase money security interests
in or purchase money mortgages on Property acquired after the date hereof to
secure purchase money Indebtedness of the type and amount permitted in Section
5.2(b) hereof, incurred in the acquisition of such Property, which security
interests cover only the Property so acquired.
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<PAGE>
"Person" means any individual, sole proprietorship, joint venture,
partnership, limited partnership, association, unincorporated organization,
joint-stock company or association, trust, corporation, entity, institution or
government body.
"Prime Rate" means that rate of interest announced or published
publicly from time to time by the Bank at its principal place of business as its
prime or equivalent rate of interest, which Prime Rate does not purport to be
the most favorable rate of interest offered by Bank to its commercial borrowers.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Solvent" means, with respect to any Person on a particular date, that
on such date (a) the fair value of the property of such Person is greater than
the total amount of liabilities, including contingent and unliquidated
liabilities, of such Person, (b) the present fair salable value of the assets of
such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (d) such Person does not intend to, and
does not believe that it will, incur debts or liabilities beyond such Person's
ability to pay as such debts and liabilities mature, and (e) such Person is not
engaged in a business or a transaction, and is not about to engage in a business
or transaction, for which such Person's property would constitute an
unreasonably small capital. In computing the amount of contingent or
unliquidated liabilities at any time, such liabilities will be computed at the
amount which, in light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual or
matured liability.
"Subordinated Debt" means any indebtedness of the Borrower which is
expressly subordinated to the Obligations and to the rights of the Bank
hereunder.
"Subsidiary" means any corporation of which more than fifty percent
(50%) of the outstanding common stock is owned, directly or indirectly, by the
Borrower or an Affiliate.
1.2 Accounting Terms.
----------------
Any accounting terms used but not otherwise defined herein shall have
their customary meanings as defined in, pursuant to, or in accordance with GAAP.
All other terms used but not otherwise defined herein shall have the meanings
provided by the version of the Uniform Commercial Code enacted in Illinois to
the extent such terms are used or defined therein.
ARTICLE II
THE CREDIT
----------
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<PAGE>
2.1 Revolving Loan
--------------
2.1 (a) Funding of the Revolving Loan. Subject to the terms and
conditions of this Agreement, the Bank agrees to lend to the
Borrower from time to time until June 1, 1999 (the "Revolving
Loan Termination Date") such sums, in a minimum amount of
$100,000 and integral multiples of $10,000 thereafter (except for
Revolving Loans bearing interest at the LIBOR-Based Rate, each of
which shall be in a minimum amount of $500,000 and integral
multiples of $100,000 thereafter), as Borrower may request by a
Revolving Loan Borrowing Notice, pursuant to Section 2.1(c)
hereof; provided, however, that the aggregate principal amount of
all loans outstanding under this Section 2.1 (the "Revolving
Loan" or "Revolving Loans") at any one time shall not exceed
Eighteen Million Dollars ($18,000,000) (the "Revolving Loan
Commitment"). The Borrower may borrow or repay and reborrow
hereunder, from the date hereof until the Revolving Loan
Termination Date, either the full amount of the Revolving Loan
Commitment or any lesser sum in the minimum amounts referred to
above. If, at any time, the Revolving Loans exceed the Revolving
Loan Commitment, the Borrower shall immediately notify the Bank
of the existence of and pay to the Bank the amount of such
excess.
2.1 (b) The Note; Repayment of Principal. In order to evidence the
Revolving Loans, on the date hereof, the Borrower will execute
and deliver a promissory note, in the form of Exhibit A hereto
(together with any and all amendments, modifications,
supplements, substitutions, renewals, extensions, and
restatements, thereof and therefor, the "Revolving Note" or the
"Note"), repayable and maturing in accordance with and bearing
interest as set forth therein.
2.1 (c) Revolving Loan Borrowing Request. The request of the Borrower
for a Revolving Loan shall be by the delivery of a written or
telecopied notice or a telephonic notice with simultaneous
written or telecopied confirmation addressed to the Bank
designating the amount of the requested Revolving Loan to be made
by the Bank, the date on which the Revolving Loan is to be made
available to the Borrower, whether the requested Revolving Loan
shall bear interest at the Floating Rate or the LIBOR-Based Rate,
and if the Revolving Loan is to bear interest at the LIBOR-Based
Rate, the applicable LIBOR Rate Borrowing Period for such
Revolving Loan; provided, however, that such notice is received
by the Bank not later than 2:00 p.m. on the Banking Day on which
the Borrower is requesting the Revolving Loan be made available
by the Bank in the case of a Revolving Loan to bear interest at
the Floating Rate and not later than two (2) Banking Days prior
to the Banking Day on which the Borrower is requesting the
Revolving Loan be made available by the Bank in the case of a
Revolving Loan to bear interest at the LIBOR-
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<PAGE>
Based Rate. Each and every request for a Revolving Loan shall
constitute Borrower's representation and warranty that (i) as of
the date of said request, no Event of Default (or event which,
with the giving of notice or lapse of time or both, would
constitute an Event of Default) has occurred and is continuing,
(ii) no material adverse change has occurred in the operations or
financial condition of the Borrower since the date of the most
recent fiscal quarter for which the Borrower's Financial
Statements have been delivered to the Bank and received thereby,
subject to Bank's reasonable discretion to determine whether such
a material adverse change has occurred, (iii) the representations
and warranties of the Borrower set forth within Article IV are
true and correct as of the date of the request for a Revolving
Loan, (iv) the affirmative and negative covenants set forth in
Article V are not currently being breached and are inviolate as
of the date of such request for a Revolving Loan, and (v) the
aggregate Revolving Loans, including the Revolving Loan
requested, do not exceed the Revolving Loan Commitment.
2.2 The Borrower's Loan Account. The Bank shall maintain a loan account
("Loan Account") on its books in which shall be recorded (i) the Loans
made by the Bank to the Borrower pursuant to this Agreement, (ii) all
payments made by the Borrower on the Loans, and (iii) all other
appropriate debits and credits as provided in this Agreement, the Loan
Supporting Documents or the Note, including, without limitation, all
fees, charges, expenses and interest provided for hereunder or
thereunder. All advances to the Borrower and all other debits and
credits provided for in this Agreement or the Note, shall be evidenced
by entries made by the Bank in its internal data control systems, in
accordance with the Bank's customary accounting practices as in effect
from time to time, showing the date, amount and reason for each such
debit or credit. The Bank shall send the Borrower statements of all
amounts due hereunder as reflected in the Loan Account, which
statements shall be considered presumptively correct as to the
indebtedness due and owing by the Borrower to the Bank unless the
Borrower notifies the Bank within one hundred twenty (120) days of
receipt of such statement that the Borrower considers such statement
to be incorrect and the Borrower specifically identifies the items on
such statement which it considers to be incorrect and attaches any
evidence in its possession supporting its position.
2.3 Interest Rate; Payments.
-----------------------
2.3 (a) The Revolving Loans; Rate. Each Revolving Loan shall bear
interest at the Borrower's option at either of the following
rates: (i) the Prime Rate less one-half of one percent (1/2%),
computed on the basis of actual days elapsed over a 360-day year
(the "Floating Rate"); or (ii) a fixed interest rate per annum
(computed for the actual number of days elapsed on the basis of
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a 360-day year) which shall be equal to the LIBOR-Based Rate in
effect on the date the Bank quotes such rate to the Borrower (the
"LIBOR-Based Rate"). The Borrower's acceptance of any LIBOR-
Based Rate shall be final and conclusive as to all matters with
respect to the determination thereof. Interest on Loans bearing
interest at the Floating Rate shall be payable monthly in arrears
beginning on June 30, 1996, and continuing on the last day of
each calendar month thereafter. The Floating Rate shall
fluctuate concurrently with and in an amount equal to any
increase or decrease in the Prime Rate. Interest on Loans bearing
interest at the LIBOR-Based Rate shall be payable in
arrears on the last day of the applicable LIBOR Rate Borrowing
Period.
2.3 (b) Interest Rate Election. Borrower shall make an election in writing
pursuant to Section 2.1 (c) as to whether such Revolving Loan shall
bear interest at the Floating Rate or the LIBOR-Based Rate. If
Borrower elects to have a Revolving Loan bear interest at the LIBOR-
Based Rate, Borrower shall also specify the applicable LIBOR Rate
Borrowing Period for such Revolving Loan; provided, however, no more
than eight (8) Revolving Loans may bear interest at the LIBOR-Based
Rate at any time and each Revolving Loan bearing interest at the
LIBOR-Based Rate shall be in a minimum amount of $500,000.
2.3 (c) Borrowing Periods. At any time when the Borrower shall select or renew
the LIBOR-Based Rate to apply to any Revolving Loan, it shall fix a
period for each such Revolving Loan during which such LIBOR-Based Rate
shall apply, such periods to be for periods (the "LIBOR Rate Borrowing
Periods") of 30, 60, 90 and 180 days; provided that (i) in no event
shall any LIBOR Rate Borrowing Period so selected expire later than
the Revolving Loan Termination Date; and (ii) if any LIBOR Rate
Borrowing Period expires on a day which is not a Banking Day, such
LIBOR Rate Borrowing Period shall expire on the next Banking Day.
2.3 (d) Conversion to LIBOR-Based Rate. Upon two (2) Banking Days prior
written or telephonic notice to Bank, Borrower may elect to convert
any Revolving Loan bearing interest at the Floating Rate into a
Revolving Loan bearing interest at the LIBOR-Based Rate in effect on
the date of the election. Borrower shall, in such notice, specify the
LIBOR Borrowing Rate Period for such LIBOR-Based Revolving Loan. Upon
such election, Bank shall make a notation on its books and records
evidencing such conversion.
2.3 (e) Renewal of Interest Rate Option. Upon the expiration of any LIBOR Rate
Borrowing Period, the Borrower may renew the LIBOR-Based Rate for one
or more additional LIBOR Rate Borrowing Periods; provided that
Borrower shall give to the Bank notice of the renewal date in
accordance with the provisions of Section 2.3(b) hereof. In
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the absence of the receipt of a notice from the Borrower of renewal in
accordance with this Section 2.3(e) or of conversion in accordance
with Section 2.3(d), the interest rate with respect to any such
Revolving Loan as to which such notice is not properly received shall
automatically be converted to the Floating Rate on the last day of the
expiring LIBOR Rate Borrowing Period.
2.3 (f) LIBOR Rate Unascertainable; Impracticability. The Bank shall
promptly notify the Borrower in the event that:
(i) on any date on which a LIBOR-Based Rate selected by the Borrower
by notice to the Bank would otherwise be set (including any
conversion to or renewal thereof), the Bank shall have determined
in good faith (which determination shall be final and conclusive)
that adequate and reasonable means do not exist for determining
the LIBOR Rate; or
(ii) at any time the Bank shall have determined in its reasonable
business judgment (which determination shall be final and
conclusive) that the selection of a LIBOR-Based Rate or the
continuation of or the conversion or renewal of a LIBOR-Based
Rate has been made impossible or impracticable or unlawful by
compliance by Bank with any applicable law or governmental
regulation, guideline or order or interpretation thereof by any
governmental authority charged with the interpretation or
administration thereof or with any request or directive of any
such governmental authority (whether or not having the force of
law).
2.3 (g) Effect of Unascertainability or Impractibility. Once the Bank has
given notice of its determination under (i) or (ii) above, the
obligation of the Bank to allow conversion to or selection or renewal
of the LIBOR-Based Rate by the Borrower with respect to any Revolving
Loan shall be suspended until the Bank gives further notice to the
Borrower that the selection of a LIBOR-Based Rate or the continuation
of or the conversion or renewal of a LIBOR-Based Rate is no longer
impossible or impracticable or unlawful. If the Bank has determined in
accordance with (ii) above that it may no longer continue any LIBOR
Rate Revolving Loans, then upon the date specified in any notice of
determination under (ii) above (which shall not be earlier than the
date such notice is given), (x) the LIBOR-Based Rate shall cease to
apply and any Revolving Loans bearing interest at the LIBOR-Based Rate
shall automatically be converted to the Floating Rate and (y) the
Borrower shall pay to Bank the accrued and unpaid interest on any
Revolving Loans bearing interest at the LIBOR-Based Rate to (but not
including) such
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specified date. If, at the time notice of a determination is
given pursuant to this Section 2.3(g), the Borrower has
previously been offered the LIBOR-Based Rate by the Bank and has
previously notified the Bank that it wishes to convert to or
select or renew the LIBOR-Based Rate, but such rate has not yet
been set, such notification shall be of no force and effect, and
the Borrower shall, with respect to any Revolving Loan subject to
such notice, either (i) convert such Revolving Loan to the
Floating Rate or (ii) if such Revolving Loan is bearing interest
at the Floating Rate, retain the Floating Rate as to such
Revolving Loan.
2.3 (h) Indemnity. Without prejudice to any other provision of this
Agreement, the Borrower shall compensate the Bank upon written
request by the Bank for all losses (including, but not limited
to, lost profits) and expenses in respect of any interest paid by
the Bank to lenders of funds borrowed by the Bank or deposited
with the Bank to make or maintain any of the Revolving Loans
which accrue interest at the LIBOR-Based Rate, which the Bank may
sustain (i) if for any reason not due to an error or omission by
Bank, a borrowing to which the LIBOR-Based Rate is to apply does
not occur on a date specified therefor hereof; (ii) if any
prepayment or repayment of any of the Revolving Loans bearing
interest at the LIBOR-Based Rate occurs on a date which is not
the last date of the relevant LIBOR Rate Borrowing Period; (iii)
as a consequence of any Event of Default by the Borrower under
this Loan Agreement or any acceleration or mandatory prepayment
or principal reduction. Without limiting the generality of the
foregoing, the Borrower shall indemnify the Bank against any loss
or expense which the Bank may sustain or incur as a consequence
of the default by the Borrower in payment of principal of or
interest on any Revolving Loan bearing interest at the LIBOR-
Based Rate, including, but not limited to, any premium or penalty
incurred by the Bank in respect of funds borrowed by it or
deposited with it for the purpose of making or maintaining any of
the Revolving Loans, as determined by the Bank in the exercise of
its sole discretion. A certificate submitted by the Bank to the
Borrower shall, in the absence of error, be conclusive and
binding as to the amount thereof.
2.3 (i) Discretion of Bank as to Manner of Funding. Notwithstanding any
other provision of this Agreement, Bank shall be entitled to fund
and maintain its funding of all or any part of its Revolving
Loans in any manner it sees fit, it being understood, however,
that for purposes of this Agreement all determinations hereunder
shall be made as if Bank had actually funded and maintained each
Loan bearing interest at the LIBOR-Based Rate through the
purchase of deposits in the interbank market having a maturity
corresponding to such Loan bearing interest at the LIBOR-Based
Rate and
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<PAGE>
bearing an interest rate equal to the LIBOR-Based Rate for such
LIBOR Rate Borrowing Period.
2.4 Fees and Expenses.
-----------------
2.4 (a) Unused Line Fee. The Borrower shall pay to the Bank an unused
line fee of 18.75 basis points per annum on the daily average of
the unused amount of the Revolving Loan Commitment. Such unused
line fee shall be payable quarterly in arrears on the last day of
each calendar quarter commencing with the quarter ending June 30,
1996.
2.4 (b) Expenses. The Borrower shall reimburse the Bank for all its
expenses incurred in connection with the preparation,
negotiation, documentation, amendment, modification,
administration or enforcement of this Agreement, the Note or any
Loan Supporting Documents, including reasonable attorney and
paralegal fees.
2.5 Optional Prepayment. The Borrower may, upon same day written
notice, prepay in whole or in part, at any time and from time to
time, without premium or penalty, the principal, accrued interest
and all other amounts of any Revolving Loans bearing interest at
the Floating Rate. The Borrower may from time to time prepay
Revolving Loans bearing interest at the LIBOR-Based Rate; however,
the Borrower shall pay to the Bank an amount equal to the amount
of interest which the Bank would have earned for the balance of
such LIBOR Rate Borrowing Period in respect of the Revolving Loan
so prepaid if such Revolving Loan had not been prepaid prior to
the end of such LIBOR Rate Borrowing Period, plus any reasonable
expense or penalty incurred by Bank on so relending or reinvesting
such Revolving Loan, reduced, if Bank is able to relend or
reinvest the principal amount of the Revolving Loan so prepaid for
the balance of such LIBOR Rate Borrowing Period, by the amount of
interest to Bank on so relending or reinvesting the Revolving
Loan. Such additional payment shall not exceed the difference
between the amount of interest the Bank would have earned for the
balance of such LIBOR Rate Borrowing Period in respect of the
Revolving Loan so prepaid if such Revolving Loan had originally
been made at the Floating Rate in effect as of the date of the
prepayment, plus any reasonable expenses incurred by Bank on so
relending or reinvesting such Revolving Loan.
2.6 Application of Payments and Prepayments. Any payments made by the
Borrower under this Agreement, the Note or any of the other Loan
Supporting Documents shall be applied to Obligations owing as of
the date of payment in the following order: (i) to any amounts
owing to the Bank pursuant to Sections 2.7 and 5.1(j) of this
Agreement;
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<PAGE>
(ii) regard to interest accrued pursuant to the terms of the Note;
and (iii) to the principal balance of the Loans.
2.7 Default Interest. In the event any amount of principal or
interest due hereunder or any other payment due under this
Agreement or any of the other Loan Documents becomes overdue, such
overdue amount shall accrue interest at the Default Interest Rate
from twenty-four hours after receipt of notice thereof from Bank
through the date of payment.
2.8 Service Charges. Borrower acknowledges that Bank will charge
Borrower monthly service charges for various services performed by
Bank, which service charges have been provided to the Borrower
from the Bank and shall be updated from time to time by Bank, in
connection with the Loans and/or other aspects of the relationship
between Borrower and Bank, and Borrower hereby agrees with Bank
that if such service charges arising in any one month exceed the
credit to Borrower in that month arising from earnings
attributable to funds on deposit with Bank in demand deposit
accounts, such service charge deficiency shall be charged by Bank
against Borrower's operating account.
2.9 Payment to the Bank. All sums payable to the Bank hereunder shall
be paid directly to the Bank, at the address set forth in Section
8.8, in immediately available funds. With the prior consent of
Borrower or after the occurrence of an Event of Default, the Bank,
in its sole discretion, may charge against or debit any deposit
account of the Borrower all or any part of any amount due
hereunder or under the Note. Any check, draft or similar item of
payment by or for the account of Borrower delivered to the Bank on
account of the Obligations shall, provided the same is honored and
final settlement is reflected by irrevocable credit to Bank, be
applied on account of Borrower's Obligations on the date of final
settlement. The Bank's right from time to time after the
occurrence or happening of an Event of Default hereunder (which
has not been waived in a writing signed by the Bank) to setoff
indebtedness owing by the Borrower to the Bank against the
Borrower's monies, deposits, credits, accounts or other property
now or at any time in the possession or control of the Bank, is
hereby acknowledged and agreed to by the Borrower.
ARTICLE III
CONDITIONS PRECEDENT
--------------------
3.1 Delivery of Documents as Conditions Precedent. The delivery of
each of the following documents (the "Loan Supporting Documents")
by the
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Borrower to the Bank shall constitute separate and distinct
conditions precedent to the making of any additional Loans by the
Bank to the Borrower:
3.1 (a) A duly executed copy of this Agreement;
3.1 (b) The duly issued and executed Revolving Note, dated as of the date
hereof;
3.1 (c) The duly executed Guaranty of the Guarantor dated as of the date
hereof in the form of Exhibit B hereto, guaranteeing the payment
and performance of the Obligations (the "Guaranty");
3.1 (d) Uniform Commercial Code financing statement, judgment and tax lien
search results for the Borrower from the Office of the Secretary
of State of Illinois and the Recorder of Deeds of Cook County,
Illinois, and from such other offices or governmental agencies or
bodies as the Bank, in its sole discretion, may reasonably
request from the Borrower from time to time, indicating that
there are no licensors or creditors claiming any interest in the
Property of the Borrower except holders of Permitted Liens;
3.1 (e) A certificate of the President of the Borrower in the form of
Exhibit C hereto;
3.1 (f) The written opinion of Sachnoff & Weaver as counsel for the
Borrower, dated as of the date hereof and addressed to the Bank,
in the substance and form set forth on Exhibit D hereto;
3.1 (g) All information, Financial Statements, or notices to be delivered
to the Bank pursuant to Section 5.1(c) hereof;
3.1 (h) Certified copies of the unanimous written consent, or resolutions
duly adopted at meeting, of the Board of Directors of the Borrower
in the form attached hereto as Exhibit E hereto authorizing the
execution, delivery and performance by the Borrower of this
Agreement, the Note and the other Loan Supporting Documents;
3.1 (i) In form and substance satisfactory to the Bank, each and every
agreement, document, note, release, guaranty, certificate, notice,
affidavit, exhibit, schedule, resolution, legal opinion or
assignment which the Bank may reasonably request from the Borrower
to effect the intent of this Agreement.
3.2 Events as Conditions Precedent. Each of the following, which shall be
true as of the date of each Loan by the Bank hereunder, are conditions
precedent to the making of any Loans by the Bank to the Borrower:
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3.2 (a) Material Adverse Change. No material adverse change in the
financial condition or affairs of the Borrower shall have
occurred, as determined by the Bank in its sole and complete
discretion, since the date of the most recent Fiscal Year-end for
which the Borrower's Financial Statements have been delivered to
the Bank, pursuant to Section 5.1(c)(iv) hereof, and received
thereby;
3.2 (b) Representations and Warranties. The representations and
warranties set forth in Section 4 hereof shall be true and
correct in all material respects as of the date on which the
Borrower has requested that a Loan be made available; and
3.2 (c) Event of Default. No Event of Default hereunder, or any event
which, with the passage of time or the giving of notice or both,
would constitute, mature into, or become an Event of Default
hereunder, shall have occurred and be continuing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
As further inducement to the Bank to enter into this Agreement and
make the Loans hereunder, the Borrower represents and warrants, as of the date
hereof and as of the date of each disbursement of the Revolving Loans, the
following, which shall survive the execution and delivery of this Agreement, the
Note and the Loan Supporting Documents and continue until all of the Obligations
and indebtedness of the Borrower have been paid, satisfied or discharged in
full, regardless of any investigation by the Bank of the Borrower's financial
condition or assets:
4.1 Organization of Borrower. The Borrower is a corporation, duly
organized, validly existing and in good standing under the Laws of the
State of Illinois and is duly qualified to do and transact business
and in good standing as a foreign corporation in each and every state
in which its failure to do so would have a material adverse effect on
its business.
4.2 Corporate Authority and Consents. The Borrower has all corporate
power and authority to own its property and assets and to carry on and
engage in its business as it is now conducted, and the Borrower has
all material licenses, permits, franchises, patents, copyrights,
trademarks, tradenames, consents, approvals and authorizations
(collectively, "Licenses") required in connection with the foregoing,
all of which Licenses are in full force and effect and no action or
claim is pending, nor, to Borrower's knowledge, is threatened, to
revoke or terminate any of the Licenses or declare any License invalid
in any material respect. No consent, approval or authorization of, or
filing, registration or qualification with, any Person, governmental,
regulatory, or otherwise, is required to be obtained or
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<PAGE>
effected by the Borrower or any Affiliates in connection with the
execution, issuance, delivery and performance of this Agreement, the
Note and the Loan Supporting Documents to which the Borrower or any
Affiliates are a party or signatory or the incurrence or performance
of the Obligations of the Borrower or any Affiliates, except where the
failure to obtain such consent, approval or authorization or to make
such filing, registration or qualification would have a material
adverse effect on the condition or operations of Borrower, Borrower's
Property or Borrower's ability to perform the Obligations, or, if so
required, has been duly obtained or effected before the date hereof.
The execution, issuance, delivery and performance of this Agreement,
the Note and the Loan Supporting Documents to which the Borrower is a
party or is a signatory and the incurrence or performance of the
Obligations and indebtedness of the Borrower hereunder (a) has been
duly and properly authorized by all necessary corporate, director,
shareholder and any other action of the Borrower and (b) has not
resulted in and will not result in:
(i) the creation or imposition of any Lien, security interest,
mortgage, charge or any encumbrance of any nature whatsoever
upon any of the Borrower's property or assets, or
(ii) the violation or contravention of, the occurrence of a
default, event of default or event, which with the passage
of time or giving of notice or both, would constitute,
mature into or become a default or event of default under,
any term or provision of the Certificate or Articles of
Incorporation or bylaws of the Borrower or any Affiliates,
any certificates of authority to do or transact business,
any order of any court, or any material contract, agreement,
mortgage, indenture, instrument, judgment or, to the best of
Borrower's knowledge, Laws to which the Borrower or any
Affiliates are parties or signatories or by which the
Borrower or any Affiliates are bound.
4.3 Binding Effect and Enforceability. Upon delivery hereof and thereof,
this Agreement, the Note and the Loan Supporting Documents to which
the Borrower is a party or signatory will be the legal, valid and
binding Obligations of the Borrower enforceable in accordance with
their terms and provisions (except as enforcement thereof may be
subject to applicable bankruptcy, insolvency, moratorium or similar
laws affecting creditors' rights generally and to general principles
of equity) and, on the date of delivery, the Borrower will not be in
violation or contravention of, and no Event of Default will exist
under, any of the foregoing.
4.4 Default of Indebtedness. The Borrower is not in default and no Event
of Default or event, which with the passage of time or giving of
notice or both,
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would constitute, mature into or become a default or Event of Default,
has occurred and is continuing with respect to any indebtedness of any
kind or nature including, without limitation, any mortgage, deed, loan
agreement or other agreement relating to the borrowing of monies in
excess of $200,000.
4.5 Financial Condition and Litigation. The Financial Statements of the
Borrower heretofore delivered to the Bank have been prepared in
accordance with GAAP (except that no disclosures and notes are
prepared in connection with any interim Financial Statements), and
fully and fairly present the financial condition of the Borrower as at
the dates thereof and results of operations for the periods covered
thereby. Since the most recent fiscal quarter-end for which the
Borrower's Financial Statements have been delivered to the Bank and
received thereby, no material adverse change in the Borrower's
financial condition or affairs has occurred and no dividends on or
redemptions of the shares of Borrower's stock have been made. Except
as disclosed in writing to the Bank or as set forth on the most recent
Financial Statements delivered to the Bank pursuant to Section
5.1(c)(iii) hereof and received thereby: (a) the Borrower has no
indebtedness, except as permitted hereunder; and (b) no proceedings,
suits, orders, claims, investigations, or other actions are pending
before any court or governmental authority or, to the best of
Borrower's knowledge, threatened against the Borrower or any
Affiliates which could materially adversely affect the assets,
properties, business or condition, financial or otherwise, of the
Borrower or affect the ability of the Borrower to perform any
Obligations.
4.6 Title and Liens. Except for the Permitted Liens, the Borrower, has
good and marketable title to all of its Property and assets, including
all Property and assets listed on the Financial Statements for the
Borrower's most recent Fiscal Year-end and its Property is not subject
to any liens, claims, security interests, mortgages, pledges, charges
or other encumbrance of any Person, except holders of the Permitted
Liens.
4.7 Inventory Warranties. (a) The current address for the chief executive
office of the Borrower is set forth on Schedule 4.7 hereof ("Chief
Executive Office Location") and the Inventory of the Borrower used in
such Borrower's business is located at the Chief Executive Office
Location and at the locations set forth on Schedule 4.7 hereof, except
for immaterial amounts of Inventory that may be in the possession of
Borrower's salesmen from time to time (the "Additional Inventory
Locations"); (b) no Inventory will ever be located in any locations
other than the Chief Executive Office Location or the Additional
Inventory Locations, without 30 days' prior written notice to the
Bank, except for immaterial amounts of Inventory that may be in the
possession of Borrower's salesmen from time to time; (c) all Inventory
is presently owned and will continue to be owned by the Borrower,
except as otherwise permitted pursuant to the terms of this Agreement,
free and clear
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of all liens and encumbrances, other than any Permitted Liens, in good
and saleable condition.
4.8 Employee Plans. The Borrower has no Employee Plans which must meet
the minimum funding standards of Section 302 of ERISA. No Employee
Plan is a multi-employer plan within the meaning of Section 3(37) of
ERISA. All payments and/or contributions required to have been made
under the provisions of any Employee Plan or by law have been timely
made.
4.9 Taxes. The Borrower has filed all federal, state, county, municipal,
and other tax returns, reports and declarations which Borrower in good
faith and in the exercise of prudent business practices believes to be
required to be filed by the Laws, has paid all taxes, including excise
taxes, assessments, penalties, interest and any other governmental
charges which Borrower in good faith and in the exercise of prudent
business practices believes are or were due and payable, unless the
Borrower is contesting in good faith, by an appropriate proceeding,
the validity, amount or imposition of the above while maintaining
accounting reserves on the books of Borrower in an amount not less
than the maximum potential liability of Borrower, and such contest
does not have or cause a material adverse change in the Borrower's
financial condition or operations and does not impair the Borrower's
ability to perform its Obligations, has made adequate provision for
the payment of all taxes, assessments, penalties, interest and other
governmental charges which are accruing but are not yet due and
payable, and has no knowledge and is not aware of any deficiency or
additional assessment which may have or has arisen in connection with
the foregoing.
4.10 Compliance with Laws. The Borrower has complied with all material
applicable Laws, the violation of which could have a material adverse
effect on the condition or operations of Borrower, the Borrower's
Property or Borrower's ability to perform the Obligations, with
respect to: (a) any restrictions, specifications or other
requirements pertaining to products that the Borrower manufactures,
leases, sells or distributes or to the services it performs; (b) the
conduct of its business; and (c) the use, maintenance and operation of
the real and personal properties owned or leased by it in the conduct
of its business.
4.11 Subsidiaries and Affiliates. The Borrower has no Subsidiaries and no
Affiliates except the officers, directors and shareholders of
Borrower.
4.12 Corporate Names. The Borrower has no assumed corporate names and is
not doing business under any corporate name other than Enterprise
Systems, Inc. and those assumed names listed on Schedule 4.12 hereto.
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4.13 Solvency. The Borrower (i) is currently Solvent and, after the
incurrence of the Obligations and indebtedness hereunder, the
execution of this Agreement, the Note and any Loan Supporting
Documents to which the Borrower is a party or signatory, and the
consummation of the transactions contemplated hereunder or thereunder,
will be Solvent. No transfer of property is being made and no
Obligation is being incurred in connection with the transactions
contemplated by this Agreement with the intent to hinder, delay or
defraud either present or future creditors of the Borrower or any
Affiliate.
4.14 Regulation U. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System), and no part of the proceeds of any of the
Loans made hereunder will be used to purchase or carry any margin
stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock.
4.15 Capital Stock and Related Matters
---------------------------------
4.15(a) The authorized capital stock of Borrower, as of the date hereof,
pursuant to Borrower's Articles of Incorporation and by-laws,
consists of 1000 shares of common stock, $.01 par value, of which
1 share is owned beneficially and of record by Guarantor. Borrower
is not subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its common
stock. All of the outstanding shares of common stock are validly,
issued, fully paid and nonassessable.
4.15(b) To the best of Borrower's knowledge, Borrower has not violated any
applicable federal state or securities laws in connection with the
offer, sale or issuance of any of its common stock. There are no
agreements between any parties with respect to the voting or
transfer of common stock.
4.15(c) No Person has any option to acquire any of the shares of stock of
Borrower.
4.16 Occupational Safety and Health. Neither Borrower nor any Affiliate
has received any notice, citation, claim, assessment or proposed
assessment as to or alleging any material violation by the Borrower or
any such Affiliate from any division of any Federal or state
occupational safety and health administrations or agencies and no such
material violation presently exists. Neither Borrower nor any
Affiliates is a party to any pending dispute with respect to the
Borrower's compliance with any Federal or state occupational safety
and health laws.
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<PAGE>
4.17 No Options. No Person has any option to acquire ownership of the
Borrower's Property or any portion thereof.
4.18 Environmental Protection.
------------------------
4.18 (a) To the best of Borrower's knowledge, no real property owned or
leased or otherwise used by the Borrower in connection with the
conduct of its business (the "Applicable Environmental Property")
has been used for the handling, treatment, storage or disposal of
any Hazardous Materials;
4.18 (b) Neither the Borrower nor any of its Affiliates has received any
order, letter or other written communication, from any
governmental unit or agency, concerning the violation of any
Environmental Laws or concerning any releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging or
dumping of any Hazardous Materials, or with respect to any air or
water discharges or emissions, on the Applicable Environmental
Property so as to threaten any liability to the Borrower or any
of its Affiliates;
4.18 (c) To the best of Borrower's knowledge, no underground storage tanks
are present on the Applicable Environmental Property and no such
tanks were previously removed; and
4.18 (d) To the best of Borrower's knowledge, there is no hazardous
environmental condition of the Applicable Environmental Property
whether natural or man-made, which the Borrower has reason to
believe poses a present or potential threat of unreasonable risk
to the health of persons, property, or the environment or which
may violate any Environmental Law.
4.19 Disclosure. No representation or warranty by the Borrower or any of
its Affiliates in this Agreement or any of the other Loan Supporting
Documents, nor any statement furnished to the Bank by the Borrower or
any of its Affiliates or agents pursuant hereto or thereto, contains
or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact, necessary when made or while the
representation or warranty is continuing, to make the statements
contained herein or therein not misleading.
4.20 Labor Relations. The Borrower has withheld all amounts required by law
or agreement to be withheld by it from the wages, salaries and other
payments to its employees, and are not liable for any arrears or wages
or any taxes or penalties for failure to comply with the foregoing.
The Borrower is not a party to any collective bargaining agreements.
To the best knowledge of the Borrower, there are no pending,
threatened or anticipated (i) employment
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discrimination or unfair labor practice charges or complaints
against or involving the Borrower before any federal, state or
local board, department, commission or agency, (ii) material
grievances, disputes or controversies with any union or any other
organization of the Borrower's employees, (iii) pending or
threatened strikes, slowdowns, work stoppages or lockouts or (iv)
any asserted pending demands for collective bargaining by any union
or organization or efforts to organize any of the employees of any
Borrower.
4.21 Other Agreements. Borrower is not a party to any contract or
agreement or subject to any charge, restriction, judgment, decree
or order materially and adversely affecting its business, Property,
assets, operations or condition, financial or otherwise.
ARTICLE V
COVENANTS
---------
The Borrower hereby covenants and agrees with the Bank that, until
the Obligations and indebtedness of the Borrower to the Bank have been satisfied
and discharged in full, the Borrower will comply with the following covenants,
unless the Bank shall give its prior written consent to the contrary:
5.1 Affirmative Covenants.
---------------------
5.1(a) Payments. The Borrower shall pay, or cause to be paid, when due
(subject to any applicable grace or cure period) all principal and
interest under the Note and all other Obligations in respect of
this Agreement, the Note and the Loan Supporting Documents.
5.1(b) Financial Covenants. The Borrower shall (a) maintain at all times a
Net Worth (determined in accordance with GAAP) of not less than
$35,000,000, (b) not permit its Interest Coverage Ratio measured as
a rolling four (4) fiscal quarter average as of the last day of any
fiscal quarter for each fiscal quarter of each Fiscal Year of
Borrower, to be less than 1.75:1, and (c) at all times maintain a
Leverage Ratio not to exceed 1:1.
5.1(c) Financial Information and Reporting. The Borrower shall keep proper
books and records with respect to its Accounts and Inventory in
which full and true entries will be made of all dealings or
transactions relating to the business and affairs of the Borrower,
in accordance with GAAP, and the Borrower shall cause to be
furnished to the Bank:
(i) Thirty (30) days after the last day of each calendar month,
beginning with the calendar month ending June 30, 1996, a
certificate in the form of Exhibit F hereto showing compliance
by Borrower with the financial covenants set forth in Section
5.1(b) hereof;
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(ii) Beginning with the month ending June 30, 1996, as soon as
practicable, and in any event within thirty (30) days after the
end of each calendar month, the Borrower's statement of income
and retained earnings and a statement of cash flow for the month
then ended and a balance sheet of the Borrower as of the end of
such month, all in reasonable detail;
(iii) Beginning with Borrower's fiscal quarter ending June 30, 1996,
as soon as practicable, and in any event within forty-five (45)
days after the end of each of the first three fiscal quarter of
each Fiscal Year, the Borrower's and Guarantor's consolidated
statement of income [and retained earnings] and a consolidated
statement of cash flow for the quarter then ended and a
consolidated balance sheet of the Borrower and the Guarantor as
of the end of such quarter, all in reasonable detail, reviewed by
an independent certified public accountant selected by the
Borrower and acceptable to the Bank and prepared in accordance
with GAAP;
(iv) As soon as practicable and, in any event, within one hundred
twenty (120) days after the end of each Fiscal Year, beginning
with the Fiscal Year ended December 31, 1996, the Borrower's and
Guarantor's consolidated and consolidating statement of income
and retained earnings and a consolidated and consolidating
statement of cash flow for the Fiscal Year then ended and a
consolidated and consolidating balance sheet of the Borrower and
Guarantor as of the end of such Fiscal Year, all in reasonable
detail, audited by an independent certified public accountant
selected by the Borrower and acceptable to the Bank and prepared
in accordance with GAAP, together with a certificate of such
accountant (i) that in performing the audit such accountant has
not obtained knowledge of any Event of Default or condition or
event which constitutes or upon notice or lapse of time or both
would constitute, an Event of Default, or disclosing all Events
of Default of which it has obtained knowledge and (ii) that he is
aware that Bank is relying on such Financial Statements;
(v) Promptly upon receipt and, in any event, within fifteen (15) days
after receipt thereof, copies of all interim and supplemental
financial reports submitted to the Borrower by independent
certified public accountants in connection with any interim audit
or review of the books and records of the Borrower made by such
accountants;
(vi) Immediately after notice to the Borrower or any Affiliate of the
Borrower of the commencement thereof, notice, in writing, of any
actions, suits, arbitration or other proceedings instituted,
commenced
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or to the Borrower's knowledge, threatened against or
affecting the Borrower of the type described in Section 4.5 of
this Agreement;
(vii) Immediately after the occurrence thereof, notice, in writing,
of any Event of Default, or any event which, with the passage of
time or giving of notice or both, would constitute, mature into
or become such an Event of Default and what action, if any, the
Borrower is taking or proposes to take with respect thereto;
(viii) Promptly after the occurrence thereof, notice, in writing, of
any other matter which has resulted in, or might result in, a
materially adverse change in the financial or other condition or
operations of the Borrower or its ability to fully perform its
Obligations under the terms and conditions of this Agreement and
the Loan Supporting Documents or its ability to repay the Note;
(ix) With reasonable promptness, such other information respecting the
business, properties or the condition or operations, financial or
otherwise, of the Borrower, as the Bank may from time to time
reasonably request in writing; and
(x) Promptly after the occurrence thereof, notice, in writing, of any
default under any of the Permitted Liens and what action, if any,
the Borrower is taking or proposes to take with respect thereto.
5.1(d) Inventory and Equipment Covenants. The Borrower shall maintain its
Inventory and Equipment on the premises at the locations described in
Section 4.8 hereof or at such other addresses as the Bank shall be
informed pursuant to Section 8.8 hereof, except for immaterial amounts
of Inventory that may be in the possession of Borrower's salesmen from
time to time.
5.1(e) Insurance. The Borrower shall, at its own expense, maintain or
cause to be maintained and provide satisfactory evidence to the Bank
as to, insurance on Borrower's Properties as is customary for Persons
in Borrower's business, all in such form, substance and amounts and
with such insurance companies or associations acceptable to the Bank
in its discretion, reasonably exercised, and any insurance policies
issued in connection with the above shall provide that said policies
shall not be cancelled or terminated without thirty (30) days' prior
written notice to the Bank. Upon Bank's request, the Borrower shall
deliver to the Bank copies of all such policies. The Borrower shall
notify the Bank within thirty (30) days of obtaining any new policy or
increase of coverage under any existing policy. If the Borrower fails
to maintain any insurance or policies of insurance as required above,
or fails to pay any premium related thereto, the Bank may, without
waiving or releasing any of Borrower's Obligations or any Event of
Default thereunder, obtain or pay the same upon notice to Borrower
(which notice shall not be
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required if an Event of Default has occurred and is continuing), but
shall be under no obligation to do so. In the event the Bank obtains
such insurance, all sums so paid and any expenses incurred in
connection therewith shall be part of the Obligations payable by the
Borrower to the Bank on demand pursuant to Section 5.1(j) hereof. The
Borrower shall also maintain in effect, in addition to the above
mentioned insurance covering its Property, such other insurance in
such amounts with such insurers and covering such risks as now
maintained by the Borrower.
5.1(f) Corporate Existence. The Borrower will maintain and preserve its
corporate existence, good standing, certificates of authority,
licenses, permits, franchises, patents, trademarks, trade names,
service marks, copyrights, leases and all other material contracts and
rights necessary to continue its operations and business on the basis
presently conducted and will generally continue substantially the same
line of business as that being presently conducted.
5.1(g) Taxes and Laws. The Borrower will pay, and shall cause Guarantor
to pay, when due all taxes, assessments, charges and levies imposed on
the Borrower or any of its income, profits, Property or assets, or
which it is required to withhold and pay out, and will comply, and
shall cause Guarantor to comply, in all material respects with all
applicable present and future Laws unless the Borrower is contesting
in good faith, by an appropriate proceeding, the validity, amount or
imposition of the above, while maintaining reserves to cover the above
which are adequate in accordance with prudent business practices, and
such contest does not have or cause a material adverse change in the
Borrower's financial condition or operations and does not impair
Borrower's ability to perform its Obligations. In the event
the Borrower fails to pay any such taxes, assessments, charges or
levies, the Bank may, without waiving or releasing any of Borrower's
Obligations or any Event of Default hereunder, pay the same upon
notice to Borrower (which notice shall not be required if an Event of
Default shall have occurred and be continuing), but shall be under no
obligation to do so. All sums so paid by the Bank and any expenses
incurred in connection therewith shall be part of the Obligations
payable by the Borrower to the Bank on demand pursuant to Section
5.1(j) hereof.
5.1(h) Repair and Maintenance. The Borrower will maintain all of its
Property and assets, including, without limitation, its Equipment and
Inventory, in good condition and repair and in proper working order,
normal wear and tear excepted, and will pay and discharge, or cause to
be paid and discharged, when due, the cost of repairs, replacement or
maintenance to the foregoing and all rentals or mortgage payments on
the foregoing, and in the event the Borrower fails in the foregoing,
the Borrower hereby authorizes, without requiring the Bank, to perform
the same and to incur such reasonable costs,
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fees and expenses in connection therewith which shall be payable on
demand by the Borrower pursuant to Section 5.1(j) hereof.
5.1(i) Inspection. Upon notice to Borrower, the Borrower, during normal
business hours, will allow the Bank, and any of its officers,
employees or agents, to visit, for inspection and review, any and all
premises where any of the Borrower's Property is located, and to make
available and furnish to the Bank the Borrower's books and records and
such financial information concerning the Borrower's Property or
assets, business, affairs, operations or financial condition as
reasonably requested by the Bank; provided, however, such notice shall
not be required if an Event of Default shall have occurred and be
continuing. The Bank shall be permitted to perform annual field
audits of any of the Borrower's premises where any of the Borrower's
Property is located at the Borrower's cost and expense.
5.1(j) Bank Costs. The Borrower shall pay to the Bank upon demand, all
reasonable out-of-pocket fees, costs and expenses incurred or paid by
the Bank (i) in connection with the insurance to be maintained under
Section 5.1(e) hereof and taxes to be paid under Section 5.1(g)
hereof; (ii) in connection with the enforcement of its rights and
remedies hereunder including, without limitation, the costs of
reasonable attorney and paralegal fees and costs of field audits as
provided in Section 5.1(i) hereof; (iii) in the repair or maintenance
of the Property of the Borrower; and (iv) in connection with any
litigation, contest, suit or proceeding (whether instituted by the
Bank, the Borrower or where payment of the Obligations might be
materially adversely affected, by any other Person) in any way
relating to the this Agreement and the Loan Supporting Documents,
except where it is determined that Bank's action or failure to act
constituted gross negligence or willful misconduct.
5.1(k) Indemnity and Release. The Borrower agrees that it will indemnify
the Bank and hold the Bank harmless from any and all claims, demands,
liabilities, losses, damages, diminutions of value, costs and expenses
relating to or in any way arising out of or from this Agreement, the
Loan Supporting Documents and/or the Loans, except as the foregoing
relate to the Bank's gross negligence, reckless or intentional
misconduct. The Borrower hereby releases the Bank from any and all
claims or causes of action which the Borrower may have, now or
hereafter, relating to any act or omission to act on the part of Bank,
its officers, agents or employees, except those arising from the
Bank's gross negligence or reckless or intentional misconduct.
5.1(l) Employee Plans. The Borrower shall (i) keep in full force and
effect any and all Employee Plans which are presently in existence or
may, from time to time, come into existence under ERISA, and not
withdraw from any such Employee Plans, unless such withdrawal can be
effected or such Employee
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<PAGE>
Plans can be terminated without material liability to the Borrower;
(ii) make contributions to all of such Employee Plans in a timely
manner and in a sufficient amount to comply with the requirements of
ERISA, including the minimum funding standards of Section 302 of
ERISA; (iii) comply with all material requirements of ERISA which
relate to such Employee Plans; (iv) notify the Bank immediately upon
receipt by the Borrower of any notice concerning the imposition of any
withdrawal liability or of the institution of any proceeding or other
action which may result in the termination of any such Employee Plans
or the appointment of a trustee to administer such Employee Plans; and
(v) promptly advise the Bank of the occurrence of any Reportable Event
or Prohibited Transaction, as defined in ERISA, with respect to any
such Employee Plans.
5.1(m) Leases. The Borrower shall maintain and comply in all material
respects with all permissible leases as listed on Schedule 5.2(b)
covering Property used by the Borrower in accordance with their terms
so as to prevent any default thereunder which may result in the
exercise or enforcement of any landlord's or other lien against the
Borrower unless (i) the Borrower is contesting in good faith, by an
appropriate proceeding, the validity, amount or imposition of any
lease charges or expenses while maintaining reserves to cover the
above which are adequate in accordance with prudent business
practices, and such contest does not have or cause material adverse
changes in the Borrower's financial condition or operations and does
not impair the Borrower's ability to perform the Obligations or (ii)
the failure by Borrower to comply will not have a material adverse
effect on such lease and Borrower's ability to occupy the premises
covered by such leases or to use the Property covered by such lease.
5.1(n) Bank Deposits.
-------------
(i) The Borrower shall have established an account (the "Operating
Account") in the Borrower's name with the Bank, into which all
monies, checks, notes and drafts (the "Funds") shall be
deposited, and into which the Borrower will immediately deposit
all payments made for Inventory or services and received by the
Borrower in the identical form in which such payments were made,
whether by cash or check. The Borrower may have unlimited access
to the Operating Account until such time after the occurrence of
an Event of Default as the Bank notifies the Borrower in writing
that it intends to restrict the Borrower's access to the
Operating Account.
(ii) The Borrower agrees that at the Bank's option during the
continuance of an Event of Default, all cash Funds deposited in
the Operating Account will be applied to the Borrower's
Obligations on the Banking Day on which the cash Funds became
available for deposit. In such circumstance, all non-cash Funds
deposited in the
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<PAGE>
Operating Account shall be applied on the next Banking Day
after which such Funds become available for deposit. The
Borrower agrees to pay all fees, costs and expenses which the
Bank incurs in connection with opening and maintaining the
Operating Account and depositing for collection by the Bank
any check or other item of payment received by the Bank on
account of the Borrower's Obligations. All of such fees, costs
and expenses shall be payable to the Bank by the Borrower upon
demand, and, until paid, shall bear interest at the rate then
applicable hereunder. All checks, drafts, instruments and
other items of payment shall be endorsed by the Borrower to
the Bank, and, if that endorsement of any such items shall not
be made for any reason, the Bank is hereby irrevocably
authorized to endorse the same on the Borrower's behalf.
(iii) The Borrower will maintain all its primary depository and
disbursement banking accounts at the Bank and shall be
responsible for all costs associated with such accounts as are
customarily charged by the Bank.
5.2 Negative Covenants.
------------------
5.2(a) Liens. The Borrower shall not, and shall not permit the Guarantor
to, create, incur, grant, pledge, permit or suffer to exist, any
Lien, charge, mortgage, security interest, pledge or any encumbrance
upon the Borrower's Property or assets of the Borrower, except the
Permitted Liens.
5.2(b) Debt. The Borrower shall not, and shall not permit the Guarantor to,
directly or indirectly, create, assume, incur, become or be liable
for or with respect to any manner of obligations, liabilities or
Indebtedness whatsoever to any Person, including purchase money
Indebtedness in excess of $1,000,000 in the aggregate per year, or
by way of any guaranties, except with respect to (i) the Obligations
of the Borrower hereunder; (ii) trade payables and indebtedness
arising or accruing in the ordinary course of business which
indebtedness does not give rise to a Lien or other security
interest, other than a Permitted Lien, and the holders thereof
executed and deliver to Bank (in form and substance satisfactory to
Bank and its counsel) subordination agreements subordinating their
claims against Borrower therefor to the payment of the Obligations;
(iii) renewals or extensions of existing indebtedness and interest
thereon (provided the same is not increased in connection therewith;
and (iv) indebtedness due to lessors under capital leases and
operating leases shown on Schedule 5.2(b) hereto.
5.2(c) Name Changes, Mergers and Acquisitions. The Borrower shall not (i)
change its corporate name or adopt an assumed corporate name without
providing the Bank prior written notice, and such name change shall
be done in compliance with any applicable laws, (ii) consolidate or
merge with
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<PAGE>
any Person, or allow any of its shares of common stock to be
sold, exchanged or otherwise transferred without the prior written
consent of Bank which consent shall not be unreasonably withheld or
(iii) acquire any stock in, or otherwise acquire all or substantially
all of the assets or properties of, any Person without the prior
written consent of Bank, which consent shall not be unreasonably
withheld.
Notwithstanding anything to the contrary contained herein, Borrower
shall have the right to merge or consolidate with any Person, acquire
stock in or otherwise acquire all or substantially all of the assets
or properties of any Person without the prior written consent of the
Bank under the following terms and conditions:
(A) in the event of any merger or consolidation, Borrower shall be
the surviving entity; and
(B) following such merger, consolidation or transfer of Borrower's
stock, Guarantor shall own not less than 100% of all of the
issued and outstanding stock of Borrower; and
(C) if any one of the following are true:
(1) the consideration paid by Borrower in connection with such
transaction is less than $5,000,000; or
(2) the outstanding principal balance of the Loans immediately
following such transaction is less than $5,000,000; or
(3) Borrower shall use less than $5,000,000 of proceeds of the
Loan to pay consideration in connection with such
transaction. Borrower shall give Bank notice of any such
proposed acquisition not less than five (5) days prior to
the proposed closing date, together with a certificate
signed by an authorized officer of Borrower, setting forth
the financial terms of the proposed acquisition and an
analysis of the sources and uses of funds to be used in
connection with said acquisition.
5.2(d) Redemptions, Dividends and Payments. The Borrower shall not declare
or pay any dividend on its common stock unless no Event of Default
would be created by the payment of such dividend, or make any
payment on account of or for the purchase, redemption or other
retirement of any shares of its common stock.
5.2(e) Transfer of Assets. The Borrower shall not sell, lease, transfer or
otherwise dispose of any of its Property, assets or rights, except
for sales, transfers,
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<PAGE>
leases or other dispositions which are made in the ordinary course
of business.
5.2(f) Investments and Loans. The Borrower shall not (i) make any
investments in any Person, except in short-term direct obligations
of the United States of America, in negotiable certificates of
deposit or money market accounts issued by insured commercial banks
satisfactory to Bank, in tax-exempt municipal securities, in tax-
exempt municipal money market funds, in tax-exempt municipal funds,
or in commercial paper issued by insured commercial banks
satisfactory to Bank, or (ii) hereafter make any loans or advances
to any Affiliate, Subsidiary, director, shareholder, officer or
employee of the Borrower or any Person in excess of $200,000 in the
aggregate at any one time, except for loans or advances to
Guarantor.
5.2(g) Prepayment or Modification of Indebtedness. The Borrower will not
(i) prepay any indebtedness for money borrowed by the Borrower or
any indebtedness secured by any of its assets (except for the
Obligations), (ii) enter into or modify any agreement as a result
of which the terms of payment of any of the foregoing indebtedness
are amended or modified.
5.2(h) Issuance of Securities. The Borrower shall not authorize, issue,
grant or dispose of any securities, including, without limitation,
any common stock, options, warrants or securities convertible into
common stock of the Borrower without the prior written consent of
the Bank, which consent shall not be unreasonably withheld.
5.2(i) False Statements. The Borrower will not furnish the Bank any
certificate or other document that will contain any untrue
statement of material fact or that will omit to state a material
fact necessary to make it not misleading in light of the
circumstances under which it was furnished.
5.2(j) Transactions with Affiliates. The Borrower shall not enter into any
agreement or arrangement, written or oral, directly or indirectly,
with an Affiliate or Subsidiary, or provide services or sell goods
to, or for the benefit of, or pay or otherwise distribute monies,
goods or other valuable consideration to, an Affiliate or
Subsidiary, except upon fair and reasonable terms no less favorable
to the Borrower than terms in a comparable arm's length transaction
with an unaffiliated Person, except as permitted pursuant to
Section 5.2(f) hereof.
5.2(k) Property. The Borrower will not permit or suffer any receiver,
trustee or assignee for the benefit of creditors, or any other
custodian to be appointed to take possession of all or any of
Borrower's Property, or permit or suffer any levy, attachment or
restraint to be made which affects any of Borrower's Property
totalling, in the aggregate, $100,000 of more.
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<PAGE>
5.2(l) Modification of Organic Documents. The Borrower will not modify,
amend or supplement Borrower's Certificate or Articles of
Incorporation or similar documents in such a way as to materially
and adversely affect Borrower's ability to repay the Obligations or
the Indebtedness.
5.2(m) Ownership of the Shares. Borrower will not suffer or permit any
change in the record or beneficial ownership of any of the shares
of Borrower's common stock.
5.2(n) Transactions Not In the Ordinary Course. Borrower shall not enter
into any transaction not in the ordinary course of business which
materially and adversely affects Borrower's ability to repay the
Obligations or the Indebtedness.
5.2(o) Guarantees. The Borrower shall not guarantee, assume, endorse or
otherwise, in any way, become directly or contingently liable in
any manner with respect to the obligations or liabilities of any
Person, except by endorsement of instruments or items for payment
or deposit or collection.
5.2(p) Capital Structure. Without the prior written consent of the Bank,
the Borrower shall not make any material change in its capital
structure, enter into any new business or in any of its business
objectives, purposes and operations any of which might in any way
adversely affect its ability to repay the Obligations.
ARTICLE VI
EVENTS OF DEFAULT
-----------------
The following shall constitute and be deemed Events of Default
hereunder:
6.1 Payment Obligations. Failure by the Borrower to make any payment
within five (5) days after such payment Obligation becomes or is
declared due or demanded.
6.2 Performance Obligations. Failure by the Borrower to perform, keep or
observe any covenants or agreements hereunder or under the Note or any
other Loan Supporting Documents and the continuance of such failure
for fifteen (15) days after notice thereof from Bank to Borrower.
6.3 Representation and Warranties. Any warranty or representation now or
hereafter made by the Borrower hereunder or by any other party to the
Loan Supporting Documents under the Loan Supporting Documents, is
untrue or incorrect in any material respect or fails to state a
material fact necessary to make such warranty or representation not
misleading in light of the circumstances in which it was made, or any
schedule, certificate, statement,
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<PAGE>
report, financial data, notice or writing furnished to the Bank at any
time by the Borrower or by a party or signatory to the Loan Supporting
Documents is untrue or incorrect in any material respect or fails to
state a material fact needed to make the foregoing not misleading in
light of the circumstances in which the foregoing were furnished, on
the date as of which the facts set forth therein are stated or
certified.
6.4 Judgments. Any judgment or order requiring payment of monies which is
not covered by insurance, shall be rendered against the Borrower, and
such judgment or order shall remain unsatisfied or undischarged and in
effect for sixty (60) consecutive days without a stay of enforcement
or execution thereof or posting of a bond pending appeal; provided,
however, that judgments or orders in an aggregate amount not to exceed
One Hundred Thousand Dollars ($100,000) shall not be deemed an Event
of Default hereunder.
6.5 Insolvency and Related Proceedings. If Borrower (i) authorizes or
makes an assignment for the benefit of creditors; (ii) generally shall
not pay its debts as they become due; (iii) shall admit in writing its
inability to pay its debts generally as they come due; or (iv) shall
authorize or commence (whether by the entry of an order for relief or
the appointment of a receiver, trustee, examiner, custodian or other
similar official therefor or for any part of its property) any
proceeding or voluntary case under any bankruptcy, reorganization,
insolvency, dissolution, liquidation, adjustment or arrangement of
debt, receivership or similar Laws or if such proceedings are
commenced or instituted, or an order for relief or approving any
petition commencing such proceedings is entered against the Borrower,
and the Borrower, by any action or failure to act, authorizes,
approves, acquiesces, or consents to the commencement or institution
of such proceedings, and such proceedings are not dismissed within
forty-five (45) days after the date of filing, commencement or
institution.
6.6 Material Agreements. If the Borrower defaults, or a default or an
event of default occurs, under or in the performance of any material
agreement, document or instruments, whether for borrowed money or
otherwise, and such default, breach, or event of default continues
beyond any applicable grace period thereunder and the effect of
which shall be to cause the holder of such obligation, agreement,
document or instrument, or the person to whom such obligation is owed
to cause such obligation to become due prior to its stated maturity or
otherwise accelerated.
6.7 State Action. If any proceeding is instituted or commenced by any
state or office thereof, including the State of Illinois or the
Secretary of State of or any commission or other instrumentality of
the State of Illinois, seeking a forfeiture of the Borrower's
Certificate or Articles of Incorporation or certificates of authority
to transact business as a foreign corporation or of a
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<PAGE>
license or permit held by the Borrower necessary to the conduct of its
business, and the Borrower shall fail to vacate any order entered in
such proceeding within thirty (30) days; or if the Borrower ceases to
conduct its business as now conducted or is enjoined, restrained or in
any way prevented by court, governmental or administrative order from
conducting all or any material part of its business affairs.
6.8 Tax Liens. If a notice of lien, levy or assessment other than a
Permitted Lien, is filed or recorded with respect to all or a
substantial part of the assets owned by the Borrower totalling, in the
aggregate, $100,000 or more, by the United States, or any department,
agency or instrumentality thereof, or by any state, county,
municipality or other governmental agency, or any taxes or debts owing
at any time or times hereafter to any one or more of the foregoing
become a lien other than a Permitted Lien, upon or a substantial part
of the Property owned by the Borrower, totalling in the aggregate
$100,000 or more, unless such notice or lien is removed within thirty
(30) days after filing or recording of such notice or becoming such
lien.
6.9 Loan Supporting Documents. If a default or Event of Default occurs
under any of the Loan Supporting Documents, including, without
limitation, the Guaranty, which is not cured within the time, if any,
specified in such Loan Supporting Documents.
6.10 Full Force and Effect. If this Agreement or any of the Loan
Supporting Documents shall cease for any reason deemed material by the
Bank in its reasonable discretion, to be in full force and effect
(other than by reason of the satisfaction of all of the Obligations or
the voluntary release by Bank of any of the Loan Supporting
Documents), or any Person (other than Bank) shall disavow its
obligations thereunder or shall contest the validity or enforceability
thereof.
ARTICLE VII
RIGHTS AND REMEDIES OF THE BANK
-------------------------------
7.1 Termination of Commitment and Acceleration. Upon the Revolving Loan
Termination Date or upon the happening or occurrence of an Event of
Default involving the Borrower and described in Section 6.5, the
Banks' commitment to make the Loans, if such commitment has not yet
terminated, shall immediately terminate, and upon the happening or
occurrence of any other Event of Default set forth in Article VI, such
Event of Default not having been previously cured or waived in writing
by the Bank, the Bank, may, at its sole and complete discretion and
option, declare the Note due and payable without any presentment,
demand, protest, notice of any of the foregoing or other notice of any
kind, all of which are hereby expressly waived notwithstanding
anything contained herein or in the Note to the
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<PAGE>
contrary, and the Bank shall have all rights and remedies now or
hereafter provided by applicable Laws and without limiting the
generality of the foregoing, may, at its option, also appropriate and
apply toward the payment of the Note, any indebtedness of the Bank to
the Borrower, howsoever, created or arising, and may also exercise any
and all rights and remedies hereunder, under the Loan Supporting
Documents.
7.2 Access to Records. Upon notice to Borrower, the Bank shall have the
right to attain access to the Borrower's books, records, files,
journals or invoices relating to the Borrower's Property or business
affairs during the Borrower's normal business hours in order to copy,
extract, verify, audit or review the same at least every six months
prior to an Event of Default and at any time after the occurrence of
an Event of Default; provided, however, no notice shall be required if
an Event of Default shall have occurred and be continuing.
ARTICLE VIII
MISCELLANEOUS
-------------
8.1 Waiver. The Bank's failure, at any time or times hereafter, either to
require strict performance by the Borrower of any provisions of this
Agreement, the Note or any Loan Supporting Documents, or to enforce
the Bank's rights under such terms or provisions, shall not waive,
effect or diminish or modify such terms or provisions, notwithstanding
any conduct or custom, actual or implied, of the Bank to the contrary
or in refraining from so doing at any time or times. Any suspension
or waiver by the Bank of an Event of Default hereunder or under any
Loan Supporting Documents or right or remedy hereunder or under any
Loan Supporting Document shall not suspend, waive, release or affect
any other Event of Default or right or remedy hereunder or under any
Loan Supporting Documents. No Obligations of the Borrower, Events of
Default or right or remedy hereunder or under any Loan Supporting
Documents shall be deemed suspended or waived by the Bank unless such
suspension or waiver is in writing signed by a duly authorized officer
of the Bank and directed to the Borrower detailing such suspension or
waiver.
8.2 Applicable Law. This Agreement, the Note and the Loan Supporting
Documents have been executed, issued, delivered and accepted in and
shall be deemed to have been made under and shall be governed by and
construed in accordance with the internal law and not the conflict of
law rules of the State of Illinois.
8.3 Severability. This Agreement, the Note and Loan Supporting Documents
shall be construed and interpreted in such manner as to be effective,
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<PAGE>
enforceable and valid under all applicable Laws. If any provision of
this Agreement, the Note or the Loan Supporting Documents shall be
held invalid, prohibited or unenforceable under any applicable Laws of
any applicable jurisdiction, such invalidity, prohibition or
unenforceability shall be limited to such provision and shall not
affect or invalidate the other provisions hereof or thereof or affect
the validity or enforceability of such provision in any other
jurisdiction, and to the extent, the provisions hereof and thereof are
severable.
8.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
8.5 Section Headings. Section headings used in this Agreement are for
convenience only and shall not effect the construction or
interpretation of this Agreement.
8.6 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Bank and the Borrower, and their respective successors
and assigns; provided, however, that the Borrower has no right to
assign any of its rights or Obligations hereunder without the prior
written consent of the Bank.
8.7 Merger Clause. This Agreement, the Note and the Loan Supporting
Documents constitute the entire agreement between the parties hereto
and thereto with respect to the Loans and may be amended only by a
writing signed on behalf of each such party. If any provision
contained in this Agreement is in conflict with, or inconsistent with,
any provision in the Note or the Loan Supporting Documents, the
provision contained in this Agreement shall govern and control.
8.8 Notices. Any notices or consents required or permitted by this
Agreement shall be (i) in writing and (ii) delivered in person,
telecopied or sent by certified or registered mail, postage prepaid,
return receipt requested, to the address set forth below, unless such
address is changed by written notice hereunder, and (iii) deemed duly
given upon compliance with the above.
(i) If to the Borrower:
Enterprise Systems, Inc.
1400 South Wolf Road
Wheeling, Illinois 60090-6524
Attn: Mr. James Ray
Mr. David Mullen
With a copy to:
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<PAGE>
Jeffrey L. Schumacher
Sachnoff & Weaver
30 S. Wacker Drive
Chicago, Illinois
(ii) If to the Bank:
LaSalle National Bank
120 South LaSalle Street
Chicago, Illinois 60603
Attention: James Minich
With a copy to:
Jeffrey L. Elegant
Jenner & Block
One IBM Plaza
Chicago, Illinois 60611
8.9 Consent to Service. The Borrower expressly submits and consents to
the jurisdiction of any state or federal court located within Cook
County, Illinois in any action, suit or proceeding commenced therein
in connection with or with respect to the Obligations, this Agreement,
the Note or any Loan Supporting Documents and waives any right to jury
trial and objection to venue in connection therewith. The Borrower
hereby waives personal service of any and all process or papers issued
or served in connection with the foregoing and agrees that service of
such process or papers may be made by registered or certified mail,
postage prepaid, return receipt requested, directed to the Borrower as
set forth in Section 8.8 above.
8.10 Waiver of Jury Trial. THE BANK AND THE BORROWER HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING
OUT OF, UNDER, IN CONNECTION WITH, OR RELATING TO THIS AGREEMENT OR
ANY OTHER LOAN SUPPORTING DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF SUCH
BANK OR SUCH BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
THE BANK TO ENTER INTO THIS AGREEMENT.
8.11 Participations. The Borrower hereby consents to the Bank's
participation, sale, assignment or transfer, at any time or times
hereafter of this Agreement or the Loan Supporting Documents, or any
portion hereof or thereof, without affecting the liability of the
Borrower hereunder; provided, however, Bank shall be responsible for
the daily administration and servicing of the Loans and shall be the
sole contact with Borrower.
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<PAGE>
8.12 Survival of Undertakings. Except to the extent provided to the
contrary in this Agreement or in the Loan Supporting Documents, no
termination or cancellation (regardless of cause or procedure) shall
in any way affect or impair the powers, obligations duties, rights and
liabilities of Borrower or Bank in relation to (i) any transaction or
event occurring prior to such termination or cancellation, and/or (ii)
any of the undertakings, agreement, covenants, warranties and
representation of Borrower contained in this Agreement or in the Loan
Supporting Documents.
8.13 Repayment of Proceeds. To the extent that Bank receives any payment
on account of Borrower's Obligations are applied on account of
Borrower's Obligations, any such payment(s) and/or proceeds or any
part thereof are subsequently invalidated, declared to be fraudulent
or preferential, set aside, subordinated and/or required to be repaid
to a trustee, receiver of any other Person under any bankruptcy act,
state or federal law, common law or equitable cause, then, to the
extent of such payment(s) or proceeds received, Borrower's Obligations
or part thereof intended to be satisfied shall be revived and
continued in full force and effect, as if such payment(s) and/or
proceeds had not been received by Bank and applied on account of
Borrower's Obligations.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
ENTERPRISE SYSTEMS, INC.
By:
------------------------------
Title:
--------------------------
LASALLE NATIONAL BANK
By:
------------------------------
Title:
--------------------------
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<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C>
Exhibit A Revolving Note
Exhibit B Guaranty
Exhibit C President's Certificate
Exhibit D Opinion of Sachnoff & Weaver
Exhibit E Secretary's Certificate
Exhibit F Compliance Certificate
SCHEDULES
---------
Schedule 4.7 Chief Executive Office and Inventory Locations
Schedule 4.12 Corporate Names
Schedule 5.2(b) Debt; Leases
</TABLE>
<PAGE>
Exhibit F
---------
COMPLIANCE CERTIFICATE
----------------------
LaSalle National Bank
120 South LaSalle Street
Chicago, Illinois 60603
Re: Loan Agreement dated as of May 31, 1996 (the "Loan Agreement") between
Enterprise Systems, Inc. ("Borrower") and LaSalle National Bank
("Bank")
Gentlemen:
In accordance with Section 6.1 (c)(i) of the Loan Agreement, the Borrower
hereby certifies to Bank that:
A. On ___________, 199_, the Net Worth of Borrower was $_____________. [must
be at least $35,000,000]
B. For the period ended __________, the Interest Coverage Ratio of Borrower
was ______:1. [must be at least 1.75:1, tested quarterly as a rolling four
fiscal quarter average]
C. On ___________, 199_, the Leverage Ratio of Borrower was ______:1. [must
not exceed 1:1]
D. As of the date hereof, no Event of Default has occurred and is continuing.
E. As of the date hereof, the representations and warranties of Borrower
contained in Article IV of the Loan Agreement are true and correct (as
though remade as of that date).
F. As of the date hereof, the affirmative and negative covenants contained in
Article V of the Loan Agreement are not currently being breached.
IN WITNESS WHEREOF, Borrower has caused this Certificate to be
executed and delivered this _____ day of ________, 19__.
ENTERPRISE SYSTEMS, INC.
By:
---------------------------
Title:
------------------------
<PAGE>
GUARANTY
This Guaranty dated as of May 31, 1996, by the undersigned, Enterprise
Systems, Inc., formerly known as Enterprise Systems International, Inc., a
Delaware corporation (hereinafter referred to as "Guarantor"), to LaSalle
National Bank ("Bank"), has reference to the following facts and circumstances:
WHEREAS, Guarantor is the sole shareholder of Enterprise Systems,
Inc., an Illinois corporation ("Borrower") and is financially interested in
Borrower, and Borrower has accordingly solicited Guarantor's execution and
delivery of this Guaranty to Bank;
WHEREAS, by reason of the foregoing, it will be to Guarantor's direct
interest and financial advantage to enable Borrower to obtain loans, advances
and other financial assistance from Bank.
WHEREAS, Bank, as a condition precedent to making loans, advances,
extensions of credit and/or other financial accommodations to Borrower requires
that Guarantor execute and deliver this Guaranty.
NOW, THEREFORE, in consideration of the foregoing, Guarantor agrees
as follows:
1. Definitions.
(A) "Borrower's Liabilities": all obligations and liabilities of Borrower
to Bank (including without limitation all debts, claims and indebtedness)
whether primary, secondary, direct, contingent, fixed or otherwise, heretofore,
now and/or from time to time hereafter owing, due or payable, however evidenced,
created, incurred, acquired or owing, under the "Loan Agreements" (hereinafter
defined), and all terms, conditions, agreements, representations, warranties,
undertakings, covenants, guaranties and provisions to be performed, observed or
discharged by Borrower under the Loan Agreements.
(B) "Guarantor's Liabilities": all of Guarantor's obligations and
liabilities to Bank under this Guaranty.
(C) "Loan Agreements": all agreements, instruments and documents,
including, without limitation, a certain Loan Agreement dated as of the date
hereof, between Bank and Borrower (the "Loan Agreement"), and all security
agreements, guaranties, pledges, powers of attorney, consents, assignments,
contracts, notices, financing statements and all other written matter
heretofore, now and/or from time to time hereafter executed by and/or on behalf
of Borrower and delivered to Bank.
(D) "Person": any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
institution, entity, party or
<PAGE>
government (whether national, federal, state, county, city, municipal or
otherwise, including without limitation, any instrumentality, division, agency,
body or department thereof).
2. Guaranty. In consideration of the financial accommodations now,
or from time to time hereafter extended by Bank to Borrower, Guarantor
unconditionally, absolutely, continuingly and irrevocably guaranties to Bank,
Borrower's prompt payment in full, when due or declared due, and Borrower's
prompt performance, of Borrower's Liabilities.
As a condition to payment or performance of Guarantor's Liabilities,
Bank is not required to (i) prosecute collection or seek to enforce or resort to
any remedies against Borrower or any other party liable to Bank on account of
Borrower's Liabilities or any guaranty thereof, or (ii) seek to enforce or
resort to any remedies with respect to any security interests, liens or
encumbrances granted to Bank by Borrower or any other party liable to Bank on
account of Borrower's Liabilities or any guaranty thereof. Bank shall have no
obligation to protect, secure or insure any of the foregoing security interests,
liens or encumbrances or the properties or interests in properties subject
thereto. Guarantor's Liabilities shall in no way be impaired, affected, reduced
or released by reason of (i) Bank's failure or delay to do or take any of the
actions or things described in this Guaranty, or (ii) the invalidity,
unenforceability, loss of or change in priority or reduction in or loss of value
of any of the aforesaid security interests, liens and encumbrances.
3. Representations and Warranties. Guarantor represents and
warrants to Bank that:
(A) The statements contained in the preamble to this Guaranty are true and
correct.
(B) Guarantor is a corporation duly organized and validly existing under
the laws of the State of Delaware.
(C) Guarantor has full corporate power and authority to enter into,
execute, deliver and perform this Guaranty and to own its property and assets
and to carry on and engage in its business as it is now conducted.
(D) This Guaranty, when duly executed and delivered, will constitute a
legal, valid and binding obligation of Guarantor, enforceable against Guarantor
in accordance with its terms.
(E) The execution, delivery and/or performance by Guarantor of this
Guaranty shall not, by the lapse of time, the giving of notice or otherwise,
conflict with or result in a breach of the Certificate of Incorporation or
Bylaws of Guarantor or constitute a violation of any provision of applicable
law, or contained in any agreement, instrument or document
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<PAGE>
to which Guarantor is now or may hereafter become a party or by which Guarantor
is or may become bound.
(F) Guarantor is now and at all times hereafter, shall be solvent and
generally able to pay its debts as such debts become due and Guarantor now owns
and shall at all times hereafter own property which, at a fair valuation,
exceeds the sum of Guarantor's debts.
(G) There are no actions or proceedings which are pending or to the best of
Guarantor's knowledge, threatened against Guarantor which might result in any
material and adverse change in Guarantor's financial condition or materially
affect Guarantor's ability to perform Guarantor's Liabilities.
(H) Guarantor has reviewed independently all agreements, instruments and
documents executed by Borrower, and Guarantor has made an independent
determination as to the validity and enforceability thereof upon the advice of
Guarantor's own counsel, and in executing and delivering the Guaranty to Bank,
Guarantor is not in any manner relying upon Bank as to the validity and/or
enforceability of any security interests of any kind or nature granted by
Borrower to Bank.
(I) Guarantor agrees to keep informed with respect to all pertinent facts
relating to Borrower's ability to pay and perform Borrower's Liabilities.
Guarantor acknowledges and agrees that Bank has relied and will continue to rely
upon the facts and information to be furnished to it by Guarantor. Guarantor
further acknowledges and agrees that in executing this Guaranty and at all times
hereafter, Guarantor has relied and will continue to rely upon Guarantor's own
investigation and upon sources other than Bank for all information and facts
relating to the ability of Borrower to pay and perform Borrower's Liabilities,
and Guarantor has not and will not hereafter rely upon Bank for any such
information or facts.
(J) The Guarantor has filed all federal, state, county, municipal an other
tax returns, reports and declarations which Guarantor in good faith and in the
exercise of prudent business practices believes to be required to be filed by
law, has paid all taxes, including excise taxes, assessments, penalties,
interest and other governmental charges which Guarantor in good faith and in the
exercise of prudent business practices believes are or were due and payable,
unless Guarantor is contesting in good faith, by an appropriate proceeding, the
validity, amount or imposition of the above while maintaining reserves, deemed
adequate by the Bank to cover the above, and as to which no foreclosure,
distraint, sale or similar proceedings have been commenced.
(K) The Guarantor is in material compliance with all laws, governmental
rules and regulations, and orders and decrees applicable to it and its
properties.
(L) Neither this Agreement nor any document, financial statement, credit
information, certificate or statement furnished to the Bank by the Guarantor
contains, or
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will contain, any untrue statement of a material fact or omits, or will omit, to
state a material fact necessary to make the statements made not misleading.
4. Covenants. Guarantor covenants and agrees with Bank that:
(A) The Guarantor shall cause to be paid on a timely basis all taxes and
assessments, special or otherwise, and any other such charges which are due and
payable.
(B) The Guarantor shall comply in all material respects with all laws,
ordinances, regulations, and orders of all governmental authorities applicable
to its business or the use of its properties. The Guarantor may contest, in
good faith, any such law, ordinance, regulation, or order and withhold
compliance during any proceeding, including appropriate appeals, so long as
Guarantor maintains reserves that are sufficient in accordance with prudent
business practices.
(C) Except for the lease, transfer, sale or other disposition of its assets
to Borrower, the Guarantor shall not sell, lease, transfer, or otherwise dispose
of all or any substantial part of the assets of the Guarantor or enter into any
sale and leaseback transaction or arrangement with respect to any properties of
the Guarantor, or wind up, liquidate, or dissolve, or agree to do any of the
foregoing. The Guarantor shall not create any subsidiaries other than Borrower.
(D) The Guarantor shall not (i) change its corporate name or adopt an
assumed corporate name without providing the Bank prior written notice, and such
name change shall be done in compliance with any applicable laws, (ii)
consolidate or merge with any Person, or allow any of its shares of common stock
to be sold, exchanged or otherwise transferred without the prior written consent
of Bank which consent shall not be unreasonably withheld or (iii) acquire any
stock in, or otherwise acquire all or substantially all of the assets or
properties of, any Person without the prior written consent of Bank, which
consent shall not be unreasonably withheld.
Notwithstanding anything to the contrary contained herein, Guarantor shall
have the right to merge or consolidate with any Person, acquire stock in or
otherwise acquire all or substantially all of the assets or properties of any
Person without the prior written consent of the Bank under the following terms
and conditions:
(1) in the event of any merger or consolidation, Guarantor shall be
the surviving entity;
(2) the consideration paid by Guarantor in connection with such
transaction is less than $5,000,000; or
(3) Guarantor shall use less than $5,000,000 of proceeds of loans by
Bank to Borrower (which proceeds have been distributed, loaned or
otherwise disbursed to Guarantor from Borrower) to pay the
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<PAGE>
consideration in connection with such transaction. Guarantor
shall give Bank notice of any such proposed acquisition not less
than five (5) days prior to the proposed closing date, together
with a certificate signed by an authorized officer of Guarantor,
setting forth the financial terms of the proposed acquisition and
an analysis of the sources and use of funds to be used in
connection with said acquisition.
(E) The Guarantor shall maintain its principal deposit relationship with
the Bank.
(F) The Guarantor shall not create, incur, assume, or suffer to exist any
funded or current debt, or guarantee, endorse or otherwise be or become
contingently liable in connection with the obligations, stock, or dividends of
any person, except: (a) the guaranty of Borrower's Obligations; (b) contingent
liabilities arising out of the endorsement in the ordinary course of business of
negotiable instruments in the course of collection thereof; and (c) current
liabilities arising in the ordinary course of business of the Guarantor and
which are not incurred for money borrowed.
(G) The Guarantor shall not create, incur, grant, pledge, permit or suffer
to exist any lien, charge, mortgage, security interest, pledge or encumbrance
upon any of Guarantor's property or assets, except for (i) Liens arising out of
judgments or awards in respect of which the Guarantor shall in good faith be
prosecuting an appeal or proceedings for review and in respect of which the
Guarantor shall have secured a subsisting stay of execution pending such appeal
or proceedings for review, provided the Guarantor shall have set aside
accounting reserves which the Bank, in its sole but reasonable discretion, deems
adequate with respect to such judgment or award; (ii) Liens for taxes,
assessments or governmental charges or levies, provided payment thereof shall
not at the time be required in accordance with the provisions hereof; (iii)
deposits, Liens or pledges to secure payments of worker's compensation,
unemployment insurance or social security benefits arising in the ordinary
course of business which are not overdue or are being contested in good faith by
appropriate proceedings diligently pursued, provided that Guarantor maintains
accounting reserves on its books deemed adequate by the Bank in its sole but
reasonable discretion to cover the above, and such contest does not have or
cause a material adverse change in the Guarantor's financial condition or
operations and does not impair Borrower's ability to perform its Obligations;
(iv) statutory landlords' liens under leases to which the Guarantor is a party;
and (v) Liens directly securing appeal and release bonds, provided that adequate
provision for all such obligations has been made on the books of Guarantor in
accordance with GAAP;
(H) The Guarantor shall provide to Bank such financial reports as set forth
in the Loan Agreement;
(I) The Guarantor will maintain and preserve its corporate existence, good
standing, certificates of authority, licenses, permits, franchises, patents,
trademarks, trade
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<PAGE>
names, service marks, copyrights, leases and all other material contracts and
rights necessary to continue its operations and business on the basis presently
conducted; and
(J) The Guarantor shall not guarantee, assume, endorse or otherwise, in any
way, become directly or contingently liable in any manner with respect to the
obligations or liabilities of any Person, except by endorsement of instruments
or items for payment or deposit or collection and the guaranty of Borrower's
Liabilities hereunder.
5. Waivers.
(A) Guarantor waives any and all right to assert against Bank any claims or
defenses based upon any failure of Bank to furnish to Guarantor any information
or facts relating to the ability of Borrower to pay and perform Borrower's
Liabilities.
(B) Guarantor waives all defenses, counterclaims and offsets of any kind or
nature, in connection with the validity and/or enforceability of this Guaranty,
arising directly or indirectly from the perfection, sufficiency, validity and/or
enforceability of any security interest granted, or any agreement, instrument or
document executed and delivered, by Borrower to Bank, or acquired by Bank from
Borrower.
(C) Guarantor waives, but only in favor of Bank, any and all rights of
subrogation, reimbursement, indemnity, exoneration, contribution, assignment,
implied contract or any other claim which it may now or hereafter have against
the Borrower or any other Person directly or contingently liable for Borrower's
Liabilities, or against or with respect to the Borrower's property (including,
without limitation, property collateralizing Borrower's Liabilities), arising
from the existence or performance of this Guaranty until all of Borrower's
Liabilities are paid in full.
(D) Guarantor waives any right to assert against Bank as a defense,
counterclaim, setoff or crossclaim to the payment or performance of Guarantor's
Liabilities, any defense (legal or equitable), setoff, counterclaim or claim
which Guarantor may now or at any time or times hereafter have against Borrower
or any other party liable to Bank in any way or manner with respect to
Borrower's Liabilities.
(E) Guarantor hereby waives notice of the following events or occurrences
and agrees that Bank may do any or all of the following in such manner, upon
such terms and at such times as Bank in its sole discretion deems advisable
without in any way impairing, affecting, reducing or releasing Guarantor from
Guarantor's Liabilities: (i) Bank's acceptance of this Guaranty; (ii) Bank's
heretofore, now or from time to time hereafter loaning monies or giving or
extending credit to or for the benefit of Borrower, whether pursuant to the Loan
Agreements or any amendments, modifications or additions thereto or alterations
or substitutions made heretofore, now or at any time or times hereafter; (iii)
Borrower's heretofore, now or at any time or times hereafter granting to Bank
security interests, liens or encumbrances in any of Borrower's assets or Bank's
heretofore, now or from time to time hereafter obtaining, substituting for,
releasing, waiving or modifying any
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<PAGE>
such security interests, liens or encumbrances; (iv) Bank's heretofore, now or
at any time or times hereafter obtaining, releasing, waiving or modifying of any
other party's guaranty of Borrower's Liabilities or any security interest, lien
or encumbrance in any other party's assets given to Bank to secure such party's
guaranty of Borrower's Liabilities; (v) Bank's heretofore, now or at any time or
times hereafter obtaining, amending, substituting for, releasing, waiving or
modifying any of the Loan Agreements; (vi) presentment, demand, notices of
default, nonpayment, partial payment and protest, and all other notices or
formalities to which Guarantor may be entitled; (vii) Bank's heretofore, now or
at any time or times hereafter granting to Borrower (and any other party liable
to Bank on account of Borrower's Liabilities) of any indulgences or extensions
of time of payment of Borrower's Liabilities; and (viii) Bank's heretofore, now
or at any time or times hereafter accepting from Borrower or any other party any
partial payment or payments on account of Borrower's Liabilities or any
collateral securing the payment thereof or Bank's settling, subordinating,
compromising, discharging or releasing the same.
6. Subordination. Guarantor covenants and agrees with Bank that:
(a) all indebtedness, liability or liabilities owed and at any time or times
hereafter owing by Borrower to Guarantor are hereby subordinated to Borrower's
Liabilities; (b) all security interests, liens and encumbrances which Guarantor
now has and from time to time hereafter may have upon any of Borrower's assets
are hereby subordinated to all security interests, liens and encumbrances which
Bank now has and from time to time hereafter may have thereon; and (c) all
indebtedness, liability or liabilities now and at any time or times hereafter
owing to Guarantor by any party liable to Bank by reason of any security
interests, liens or encumbrances granted by Borrower to Bank are hereby
subordinated to all indebtedness, liability or liabilities owed by such party to
Bank.
7. Security. Guarantor agrees that any and all security interests,
liens and encumbrances in any collateral ("Collateral") heretofore, now or at
any time or times hereafter granted by Guarantor to Bank shall secure the prompt
payment, and the prompt, full and faithful performance, of Guarantor's
Liabilities. Regardless of the adequacy of any Collateral securing Guarantor's
Liabilities hereunder, any deposits or other sums at any time credited by or
payable or due from Bank to Guarantor, or any monies, cash, cash equivalents,
securities, instruments, documents or other assets of Guarantor in possession or
control of Bank or its bailee for any purpose may at anytime be reduced to cash
and applied by Bank to or setoff by Bank against Guarantor's Liabilities
hereunder.
8. Default. The occurrence of any one of the following events
shall, at the election of Bank, be deemed a default by Guarantor ("Event of
Default"), under this Guaranty: (a) if Guarantor fails or neglects to perform,
keep or observe any term, provision, condition, covenant, warranty or
representation contained in this Guaranty, which is required to be performed,
kept or observed by Guarantor; (b) occurrence of a default or Event of Default
under any other agreement, instrument or document heretofore, now or at any time
hereafter delivered by Guarantor to Bank; (c) if Guarantor fails to pay any of
Guarantor's Liabilities when the same are due and payable or declared due and
payable; (d) if any material portion of Guarantor's assets are seized, attached,
subjected to a
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<PAGE>
writ or distress warrant, or are levied upon, or come within the possession of
any receiver, trustee, custodian or assignee for the benefit of creditors and
the same is not terminated or dismissed within forty-five (45) days thereafter;
(e) if a petition under the Bankruptcy Reform Act of 1978 or any similar law or
regulation shall be filed by Guarantor, or if Guarantor shall make an assignment
for the benefit of creditors; (f) if Guarantor is enjoined, restrained or in any
way prevented by court order from conducting all or any material part of
Guarantor's business affairs or if a petition under any section or chapter of
the Bankruptcy Reform Act of 1978 or any similar law or regulation is filed
against Guarantor or if any case or proceeding is filed against Guarantor for
liquidation of Guarantor's assets and such injunction, restraint or petition is
not dismissed or stayed within forty-five (45) days after the entry or filing
thereof; (g) if an application is made by Guarantor for the appointment of a
receiver, trustee or custodian for any of Guarantor's assets; (h) if an
application is made by any person other than Guarantor for the appointment of a
receiver, trustee, custodian or conservator for any of Guarantor's assets and
the same is not dismissed within forty-five (45) days after the application
therefor; (i) if a notice of lien, levy or assessment is filed of record with
respect to all or any material portion of Guarantor's assets by the United
States or any department, agency or instrumentality thereof or by any state,
county, municipal or other governmental agency, or if any taxes or debts owing
at any time or times hereafter to any one of them becomes a lien or encumbrance
upon any material portion of Guarantor's assets; (j) if Guarantor is in default
in the payment of any material liabilities owed by Guarantor to any person for
borrowed money (other than Guarantor's Liabilities) and such default is declared
and is not cured within the time, if any, specified therefor in any agreement
governing the same; or (k) if an "Event of Default" occurs under the Loan
Agreements.
9. Remedies. Upon the occurrence of an Event of Default, and the
delivery of notice thereof to Guarantor, at the address set forth below,
Guarantor's Liabilities shall be due and payable and enforceable against
Guarantor, forthwith, at Bank's principal place of business, whether or not
Borrower's Liabilities are then due and payable and Bank may, in its sole
discretion, exercise any one or more of the following remedies which are
cumulative and non-exclusive: (a) if Guarantor's Liabilities are not paid
forthwith by Guarantor to Bank at Bank's principal place of business, proceed to
suit against Guarantor; at Bank's election, one or more successive or concurrent
suits may be brought hereunder by Bank against Guarantor, whether suit has been
commenced against Borrower, and in any such suit Borrower may be joined (but
need not be joined) as a party with Guarantor; (b) reduce to cash or the like
any of Guarantor's assets of any kind or nature in the possession, control or
custody of Bank, and, with notice to Guarantor, apply the same in reduction or
payment of Guarantor's Liabilities; or (c) exercise any other right or remedy
provided by law.
10. Costs, Fees and Expenses. If at any time or times after the
occurrence of an Event of Default Bank employs counsel for advice or other
representation (i) with respect to this Guaranty, and/or (ii) to represent Bank
in any litigation, contest, dispute, suit or proceeding or to commence, defend
or intervene or to take any other action in or with respect to any litigation,
contest, dispute suit or proceeding (whether instituted
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<PAGE>
by Bank, Guarantor or any other person) in any way or respect relating to the
Collateral, if any, this Guaranty or Guarantor's affairs, the reasonable costs,
fees and expenses incurred by Bank in any manner or way with respect to the
foregoing shall be part of Guarantor's Liabilities, payable by Guarantor to Bank
on demand. Without limiting the generality of the foregoing, such costs, fees
and expenses include: (i) reasonable attorneys' fees, costs, and expenses; (ii)
accountants' fees, costs and expenses; (iii) court costs and expenses; and (iv)
court reporter fees, costs and expenses.
11. Jurisdiction. This Guaranty is submitted to Bank at Bank's
principal place of business and shall be deemed to have been made thereat. This
Guaranty shall be governed and controlled as to interpretation, enforcement,
validity, construction, effect and in all other respects by the laws, statutes
and decisions of the State of Illinois. Guarantor, in order to induce Bank to
accept this Guaranty, agrees that all actions or proceedings arising directly,
indirectly or otherwise in connection with, out of, related to or from this
Guaranty shall be litigated, at Bank's sole discretion and election, only in
courts having situs within the City of Chicago, State of Illinois. Guarantor
hereby consents and submits to the jurisdiction of any local, state or federal
court located within said city and state. Guarantor hereby waives any right
Guarantor may have to transfer or change the venue of any litigation brought
against Guarantor in accordance with this paragraph. Guarantor acknowledges
that the right to a trial by jury is a constitutional right, but that the right
may be waived. Guarantor knowingly, voluntarily and without coercion, waives
all rights to trial by jury.
12. Miscellaneous. If any provision of this Guaranty or the
application thereof to any party or circumstance is held invalid or
unenforceable, the remainder of this Guaranty and the application of such
provision to other parties or circumstances will not be affected thereby, the
provisions of this Guaranty being severable in any such instance.
This Guaranty shall continue in full force and effect until Borrower's
Liabilities are fully paid, performed and discharged and Bank gives Guarantor
written notice thereof at Guarantor's address or addresses specified below.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time payment of any of Guarantor's Liabilities is rescinded or
must otherwise be returned by Bank upon the insolvency, bankruptcy or
reorganization of Guarantor or Borrower or otherwise, all as though such payment
had not been made. This Guaranty shall be binding upon Guarantor and its
successors and assigns and shall inure to the benefit of the Bank, its
successors and assigns. Written notice to Guarantor shall be to the address or
addresses specified below.
Bank's failure at any time hereafter to require strict performance by
Guarantor of any provision of this Guaranty shall not waive, effect or diminish
any right of Bank thereafter to demand strict compliance and performance
therewith.
ENTERPRISE SYSTEMS, INC.,
a Delaware corporation
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<PAGE>
By:__________________________
Title:_______________________
Address:
1400 South Wolf Road
Wheeling, Illinois 60090
SUBSCRIBED AND SWORN TO before the
undersigned, a notary public in and for
the State of Illinois, County of Cook,
this ____ day of May, 1996.
_________________________
Notary Public
My Commission Expires:
_________________________
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Exhibit 23.1
INDEPENDENT AUDITORS' REPORT AND CONSENT
Board of Directors and Stockholders
Enterprise Systems Inc.:
The audits referred to in our reports dated February 12, 1996, included the
related consolidated financial statement schedule as of December 31, 1995, and
for each of the years in the three-year period ended December 31, 1995, included
in the registration statement. The consolidated financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion on the consolidated financial statement schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We consent to the use of our reports dated February 12, 1996 on the consolidated
financial statements of Enterprise Systems, Inc. and subsidiary as of December
31, 1994 and 1995, and for each of the years in the three-year period ended
December 31, 1995, included herein, and to the reference to our firm under the
heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Chicago Illinois
July 24, 1996
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
Board of Directors
Continental Health Systems, Inc.
We consent to the use of our report dated July 10, 1996 on the financial
statements of the Matkon Product Line of Continental Health Systems, Inc. as of
November 30, 1994 and 1995, and for the years ended November 30, 1994 and 1995,
included herein, and to the reference to our firm under the heading "Experts" in
the prospectus.
KPMG Peat Marwick LLP
Kansas City, Missouri
July 24, 1996
